Question

Snowflake Corp.

Penguin, Inc. acquires 100% of the outstanding shares of Snowflake Corp. for $2,250,000 and accounts for the transaction using the purchase method. Snowflake's balance sheet at the acquisition date is as follows:

Snowflake, Corp. Balance Sheet Acquisition Date
​	​ Historical Cost	Current Market Value
Assets	​	​
Current Assets	$900,000	$900,000
Depreciable Assets less Accumulated Depreciation	$875,000	$1,250,000
Goodwill	​	​
Total Assets	$1,775,000	​
​	​	​
Liabilities and Equities	​	​
Liabilities	$1,100,000	$1,100,000
Deferred Income Tax Liability	$125,000	$125,000
Shareholders' Equity	$550,000	​
Total Liabilities and Equities	$1,775,000	​

1.Based on the information concerning Snowflake Corp. what is the market value of the company's shareholders' equity at the acquisition date?

$1,775,000

$475,000

$2,250,000

$0

2.Based on the information concerning Snowflake Corp. by what amount would Penguin increase depreciable assets when it consolidates Snowflake on the acquisition date?

$1,775,000

$475,000

$2,250,000

$375,000

3.Based on the information concerning Snowflake Corp. what is the value of the goodwill related to the acquisition?

$1,775,000

$475,000

$2,250,000

$1,325,000

Answer 1

1.Based on the information concerning Snowflake Corp. what is the market value of the company's shareholders' equity at the acquisition date?
$1,775,000
$475,000
$2,250,000	Correct
$0
It is  acquisition price given in the question
2.Based on the information concerning Snowflake Corp. by what amount would Penguin increase depreciable assets when it consolidates Snowflake on the acquisition date?
$1,775,000
$475,000
$2,250,000
$375,000	Correct
Increase in Depreciable Assets = ($900,000 + 1,250,000) - ($900,000 + 875,000) =	$375,000
3.Based on the information concerning Snowflake Corp. what is the value of the goodwill related to the acquisition?
$1,775,000
$475,000
$2,250,000
$1,325,000	Correct
Goodwill = $2,250,000 - [($900,000 + 1,250,000) - ($1,100,000 + 125,000)]	$1,325,000