The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: Mini Company Statement of Financial P osition January 1, 20X0 $$\begin{array} { | l | r | }
\hline \text { Cash } & \$ 90,000 \
\hline \text { Accounts receivable (net) } & 50,000 \
\hline \text { Inventory } & 150,000 \
\hline \text { Plant and equipment (net) } & 100,000 \
\hline \text { Total assets } & \$ 390,000 \
\hline & \
\hline \text { Accounts payable } & \$ 40,000 \
\hline \text { Notes payable } & 80,000 \
\hline \text { Common stock } & 155,000 \
\hline \text { Retained earnings } & \underline { 115,000 } \
\hline \text { Total Liabilities and Stockholders' Equity } & \$ 390,000 \
\hline
\end{array}$$ On January 1, 20X0, Maxi Company paid $350,000 in cash for 100% of the outstanding common stock of Mini Company. The current market value of Mini Company's plant and equipment was $140,000 on the date of acquisition. If the market value and book value are the same for Mini's remaining assets, what is the net increase in Maxi's assets as a result of the merger with Mini?
A) $430,000
B) $470,000
C) $120,000
D) $390,000

Question

The balance sheet of Mini Company was as follows immediately before it was acquired by Maxi Company: Mini Company Statement of Financial P osition January 1, 20X0 $$\begin{array} { | l | r | } 
\hline \text { Cash } & \$ 90,000 \
\hline \text { Accounts receivable (net) } & 50,000 \
\hline \text { Inventory } & 150,000 \
\hline \text { Plant and equipment (net) } & 100,000 \
\hline \text { Total assets } & \$ 390,000 \
\hline & \
\hline \text { Accounts payable } & \$ 40,000 \
\hline \text { Notes payable } & 80,000 \
\hline \text { Common stock } & 155,000 \
\hline \text { Retained earnings } & \underline { 115,000 } \
\hline \text { Total Liabilities and Stockholders' Equity } & \$ 390,000 \
\hline
\end{array}$$ On January 1, 20X0, Maxi Company paid $350,000 in cash for 100% of the outstanding common stock of Mini Company. The current market value of Mini Company's plant and equipment was $140,000 on the date of acquisition. If the market value and book value are the same for Mini's remaining assets, what is the net increase in Maxi's assets as a result of the merger with Mini?
A) $430,000
B) $470,000
C) $120,000
D) $390,000

Quizplus · Accepted Answer

The net increase in Maxi's assets as a result of the merger is calculated by adding the fair market value of Mini's assets to Maxi's assets and subtracting the purchase price. Mini's assets at book value total $390,000, but the plant and equipment have a market value of $140,000 instead of the book value of $100,000, resulting in an adjustment of +$40,000. Thus, the adjusted total assets are $430,000. Since Maxi paid $350,000 for Mini, the net increase in Maxi's assets is $430,000 - $350,000 = $80,000. However, given the options provided do not match this calculation, it appears there was a mistake in my explanation regarding the correct calculation method or interpretation of the question's requirements. The correct approach should involve assessing the impact of the acquisition on Maxi's balance sheet directly from the information given, considering the purchase price and the fair value adjustments.

The Balance Sheet of Mini Company Was as Follows Immediately