Question

On October 1, 20X3, Green Corporation paid $450,000 for all of Yellow Company's outstanding common stock. On that date, the book values and fair values of Yellow's recorded assets and liabilities were as follows: Book Value Fair Value Cash and Receivables $75,000 $75,000 Inventory 155,000 160,000 Buildings and Equipment (net) 260,000 320,000 Liabilities (150,000) (150,000) Net Assets $340,000 $405,000 Based on the preceding information, the differential implicit in this acquisition is

Answer 1

Answer:

The differential implicit in this acquisition is $110,000

Explanation:

The computation of the differential implicit is shown below:

Differential implicit = Amount paid - book value

                               = $450,000 - $340,000

                               = $110,000

The differential implicit shows a difference between the amount paid and the book value so we do not consider the fair value which is given in the question