Question
2- Dubai Corporation acquired 100 percent of Sharjah Company's common stock on January 1, 2019. Balance sheet data for the two companies immediately following the
2- Dubai Corporation acquired 100 percent of Sharjah Company's common stock on January 1, 2019. Balance sheet data for the two companies immediately following the acquisition follows:
Item | Dubai Corporation | Sharjah Company |
| |||||||||
Cash |
| $ | 30,000 |
|
|
| $ | 25,000 |
|
| ||
Accounts Receivable |
|
| 80,000 |
|
|
|
| 40,000 |
|
| ||
Inventory |
|
| 150,000 |
|
|
|
| 55,000 |
|
| ||
Land |
|
| 65,000 |
|
|
|
| 40,000 |
|
| ||
Buildings and Equipment |
|
| 260,000 |
|
|
|
| 160,000 |
|
| ||
Less: Accumulated Depreciation |
|
| (120,000 | ) |
|
|
| (50,000 | ) |
| ||
Investment in Spin Company Stock |
|
| 150,000 |
|
|
|
|
|
|
| ||
Total Assets |
| $ | 615,000 |
|
|
| $ | 270,000 |
|
| ||
Accounts Payable |
|
| $45,000 |
|
|
|
| $33,000 |
|
| ||
Taxes Payable |
|
| 20,000 |
|
|
|
| 8,000 |
|
| ||
Bonds Payable |
|
| 200,000 |
|
|
|
| 100,000 |
|
| ||
Common Stock |
|
| 50,000 |
|
|
|
| 20,000 |
|
| ||
Retained Earnings |
|
| 300,000 |
|
|
|
| 109,000 |
|
| ||
Total Liabilities and Stockholders' Equity |
| $ | 615,000 |
|
|
| $ | 270,000 |
|
| ||
At the date of the business combination, the book values of Sharjah's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, and land, which had a fair value of $50,000. The fair value of land for Dubai Corporation was estimated at $80,000 immediately prior to the acquisition.
c) Based on the preceding information, what is the differential associated with the acquisition?
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