Romenesko Conglomerate Co. recently acquired Teasedale Cosmetic Company through a tender offer for all the common stock

Question:

Romenesko Conglomerate Co. recently acquired Teasedale Cosmetic Company through a tender offer for all the common stock of Teasedale Cosmetic.Teasedale stock had been trading on the market at $25 per share, but the tender offer was made at $35 per share for all 2 million of the company's shares.

Teasedale had a book value of $17 per share at the time of the acquisition. Romenesko gave each shareholder $10 in cash, 1/2 of a share of Romenesko common stock (trading at $30 per share), and 1/10 of a share of an $8 preferred stock not previously issued for eachshare owned.Teasedale's condensed balance sheet was as follows before the acquisition (in thousands):

• Cash ...................... $ 300

• Other current assets .............. 3,000

• Property and equipment ........ 22,000

• Intangibles exclusive of goodwill ...... 2,500

• Goodwill ................ 5,000

• Total assets ............... $32,800

• Current liabilities ............. $ 4,000

• Pension obligation ............. 3,000

• Long-term debt ..............8,000

• Deferred taxes .................. 800

• Stockholders' equity ............ 17,000

• Total liabilities and equity .......... $32,800

Required

a. What are the unique valuation problems the auditor must address in connection with Romenesko's purchase of Teasedale Cosmetics?

b. How should the auditor use a specialist in the valuation of the purchase transaction?

c. What happens to the goodwill that was on Teasedale's books? Explain.

d. What happens to the other intangibles that were on Teasedale's books? Explain.

e. What happens to the deferred income tax liability on Teasedale's books once the purchase is completed?

f. Assume that the client uses a specialist who does not change the value assigned to current assets or liabilities, but reduces the pension obligation to $1,500 and values the PPE at $30 million and other intangibles at $5 million. Additionally, the current market value of Teasedale's long-term debt is $5 million, but its face value remains at $8 million (also its maturity value).What is the amount of goodwill to be recorded?

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