Arizona Corp Account Balances At 12119rece

Arizona Corp Had The Following Account Balances At 12119receivable

Arizona Corp. had the following account balances at 12/1/19: Receivables: $96,000; Inventory: $240,000; Land: $720,000; Building: $600,000; Liabilities: $480,000; Common stock: $120,000; Additional paid-in capital: $120,000; Retained earnings, 12/1/19: $840,000; Revenues: $360,000; and Expenses: $264,000. Several of Arizona's accounts have fair values that differ from book value. The fair values are: Land — $480,000; Building — $720,000; Inventory — $336,000; and Liabilities — $396,000. Inglewood Inc. acquired all of the outstanding common shares of Arizona by issuing 20,000 shares of common stock having a $6 par value, but a $66 fair value. Stock issuance costs amounted to $12,000. Imagine you are the decision maker at Inglewood Inc. Prepare a fair value allocation and goodwill schedule at the date of the acquisition. Determine in 525- words whether you would encourage acquiring Arizona Corp? Be sure to include your rationale. You must use the attached Excel template to complete and submit your required 1 of this assignment.

Paper For Above instruction

The acquisition of Arizona Corp by Inglewood Inc. presents a strategic opportunity to expand market presence and diversify asset holdings. To evaluate whether such an acquisition is favorable, a detailed fair value allocation and goodwill calculation are essential. This analysis offers insight into the immediate financial implications and long-term strategic value of acquiring Arizona Corp.

Initially, a fair value analysis of Arizona's assets and liabilities showcases pivotal differences from book values. The fair value adjustments indicate an appreciation of land and buildings, while inventory and liabilities also show notable differences. Land's book value of $720,000 is adjusted downward to $480,000, reflecting a decrease in fair value, indicating potential overvaluation on the books. Conversely, the building's fair value rises to $720,000 from its book value of $600,000, suggesting an undervaluation on the books and a potential asset appreciation. Inventory's fair value increases from $240,000 to $336,000, signaling an inventory revaluation, which might positively impact future cost of goods sold and profit margins. Liability adjustments decrease liabilities from $480,000 to $396,000, reflecting a reduction in obligations, thus improving the net position of the acquired company.

Calculating the purchase price involves the issuance of 20,000 shares with a fair value of $66 per share, generating a total value of $1,320,000. Subtracting issuance costs of $12,000 results in a net investment of $1,308,000. When allocating this purchase price among the identifiable net assets, the fair value adjustments are crucial. The calculation begins with the fair value of assets and liabilities: inventory increases by $96,000; land decreases by $240,000; building increases by $120,000; and liabilities decrease by $84,000. These adjustments help establish the fair value of net identifiable assets at approximately $1,284,000.

Allocating the purchase price involves assigning values to the assets and liabilities based on their fair values, resulting in a net identifiable asset value of about $1,284,000. The excess of the purchase price over the net fair value of net identifiable assets constitutes goodwill. In this case, goodwill is calculated as $1,308,000 (purchase price) minus $1,284,000 (fair value of net assets), resulting in approximately $24,000. This goodwill reflects non-identifiable assets such as brand reputation, customer loyalty, and synergistic benefits.

Encouraging the acquisition of Arizona Corp depends upon the strategic benefits versus costs. The positive fair value adjustments and goodwill assessment suggest a sound investment if the integration offers operational synergies and growth prospects. Arizona's assets, particularly the increased value of land and buildings, provide tangible benefits. Moreover, apparent undervaluation of inventory supplies opportunities for improved profitability. However, the relatively modest goodwill indicates that most value is derived from the tangible assets, and reliance solely on goodwill for future gains may be risky.

From a strategic standpoint, acquiring Arizona aligns with Inglewood's diversification objectives. The revaluation adjustments and the relatively low acquisition cost relative to the fair value of assets support the potential for a profitable investment. Furthermore, the acquisition can foster economies of scale, expanded market share, and enhanced competitive positioning. Nonetheless, potential challenges include integrating different corporate cultures, managing increased liabilities, and ensuring the projected benefits materialize.

In conclusion, based on the fair value allocation and goodwill schedule, acquiring Arizona appears favorable if Inglewood Inc. can realize synergies and manage integration risks effectively. The significant asset revaluations and minimal goodwill imply that the acquisition is backed by tangible assets, decreasing the likelihood of overpayment. Therefore, I would encourage the acquisition, provided due diligence confirms strategic alignment and operational feasibility.

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