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Which theory would you recommend and why

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Reference no: EM133012040

Question -

Part A - On Jan. 1, 2020, Black Inc. acquired 80% of the voting shares of Bayleg Inc. (Bayleg had 10,000 outstanding shares on the acquisition date) for $128,000 cash. On that day, Bayleg's balances showed that its net assets have a fair value of $130,000.

Required -

1) If the management of Black expects a lower D/E ratio, which theory would you recommend for consolidation? and why? supporting numbers are also required.

2) If the management of Black expects a higher return on equity ratio (ROE), which theory would you recommend for consolidation? and why? supporting numbers are also required.

Part B - On Jan. 1, 2020, Alack Inc. acquired 80% of the voting shares of Cayleg Inc. (Cayleg had 10,000 outstanding shares on the acquisition date) for 90,000 cash. On that day, Cayleg's balances showed that its net assets have a fair value of $135,000.

Required -

3) If the management of Alack expects a lower D/E ratio, which theory would you recommend? and why? supporting numbers are also required.

4) If the management of Alack expects a higher assets turnover ratio, which theory would you recommend? and why? supporting numbers are also required.

Reference no: EM133012040

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