Answer:
$1,456,000
Explanation:
Calculation to determine the value of the total equity of the combined firm, XY, if the purchase method of accounting is used
First step is to calculate the Assets from Firm X
Assets from Firm X = 25,000 ( $38 )
Assets from Firm X= $950,000 (book value)
Second step is to calculate the Assets from Firm Y
Assets from Firm Y = 22,000 ( $21 )
Assets from Firm Y = $462,000 (Market value)
Third step is to calculate the Goodwill
Goodwill = 22,000 ($21 + 2 ) - $462,000
Goodwill= $44,000
Now let calculate the the total equity of the combined firm, XY,
Total equity of XY = $950,000 + $462,000 + $44,000
Total equity of XY = $1,456,000
Therefore the value of the total equity of the combined firm, XY, if the purchase method of accounting is used will be $1,456,000
