Osicom Tech is acquiring Rexon's outstanding common stock for $32 million. Before acquisition financial information on these two firms is given as follows (in $ millions): $$\begin{array} { l r r }
& \text { Osicom Tech } & \text { Rexon } \
\text { Total assets } & \$ 120 & \$ 50 \
\text { Liabilities } & 60 & 25 \
\text { Stockholders' equity } & 60 & 25
\end{array}$$ ? What are the total assets and stockholders' equity (in $ millions) if the purchase method is used as the accounting method for this merger?
A) $170; $85
B) $177; $92
C) $170; $92
D) $85; $92

Question

Osicom Tech is acquiring Rexon's outstanding common stock for $32 million. Before acquisition financial information on these two firms is given as follows (in $ millions): $$\begin{array} { l r r } 
& \text { Osicom Tech } & \text { Rexon } \
\text { Total assets } & \$ 120 & \$ 50 \
\text { Liabilities } & 60 & 25 \
\text { Stockholders' equity } & 60 & 25
\end{array}$$ ? What are the total assets and stockholders' equity (in $ millions) if the purchase method is used as the accounting method for this merger?
A) $170; $85
B) $177; $92
C) $170; $92
D) $85; $92

Quizplus · Accepted Answer

Under the purchase method, total assets are the sum of Osicom's assets and the purchase price of Rexon, which is $120 + $32 = $152 million. Liabilities remain the same, so stockholders' equity is $152 - $60 = $92 million. Total assets are $120 + $50 + $7 (goodwill) = $177 million.

Osicom Tech Is Acquiring Rexon's Outstanding Common Stock for $32