Question

Pluto Corporation purchased Saturn Corporation's assets and liabilities for $15,000,000. Saturn's assets and liabilities consist of the following:

Fair Value Dr (Cr) Book Value Dr (Cr)
Cash, receivables $ 6,000,000 $ 5,000,000
Inventory 9,000,000 8,000,000
Equipment 65,000,000 60,000,000
Liabilities (63,000,000) (63,000,000)
The gain on acquisition is:

Answer 1

The gain on acquisition is -$56,000,000.

Step-by-step explanation:

The gain on acquisition can be calculated by subtracting the book value of Saturn Corporation's assets from the fair value of those assets. In this case, the fair value and book value for each asset is provided:

• Cash, receivables: Fair Value = $6,000,000, Book Value = $5,000,000
• Inventory: Fair Value = $9,000,000, Book Value = $8,000,000
• Equipment: Fair Value = $65,000,000, Book Value = $60,000,000

To calculate the gain on acquisition, we need to sum up the fair values of the assets and subtract the sum of their book values:

Gain = (Fair Value of Cash + Fair Value of Inventory + Fair Value of Equipment) - (Book Value of Cash + Book Value of Inventory + Book Value of Equipment)

Substituting the values, the gain on acquisition is:

Gain = ($6,000,000 + $9,000,000 + $65,000,000) - ($5,000,000 + $8,000,000 + $60,000,000) = $17,000,000 - $73,000,000 = -$56,000,000