Question

Public Equity Corporation acquired Lenore Company through an exchange of common shares. All of Lenore's assets and liabilities were immediately transferred to Public Equity. Public's common stock was trading at $20 per share at the time of exchange. Following selected information is also available.

B4 acquis After acquis
PV shares o/s $200,000 $250,000
Add'l PIC $350,000 $550,000

Based on the preceding information, what is the fair value of Lenore's net assets, if goodwill of $56,000 is recorded?
A) $306,000
B) $244,000
C) $194,000
D) $300,000

Answer 1

The fair value of Lenore's net assets, with goodwill of $56,000 recorded, is $688,000. Therefore, the correct answer is $688,000 (Option D).

Step-by-step explanation:

The fair value of Lenore's net assets, with goodwill of $56,000 recorded, can be calculated by taking the After Acquisition Equity and subtracting the Additional Paid-In Capital (APIC) and the calculated goodwill.

After the acquisition, the PV shares outstanding is $250,000, the APIC is $550,000, and the goodwill is $56,000.

Therefore, the fair value of Lenore's net assets is:

$250,000 + $550,000 - $56,000 = $744,000

Since the question asks for the net assets with the goodwill recorded, we will subtract the goodwill from the total:

$744,000 - $56,000 = $688,000

Therefore, the correct answer is $688,000 (Option D).