Millicom is acquiring Vikonic's outstanding common stock for $15 million. Financial information (in $ millions) on these two firms prior to the acquisition is as follows: ?
? $$\begin{array} { l r r }
& \text { Millicom}& \text { Vikonic } \
\text { Total assets, book value } & \$ 90 & \$ 40 \
\text { Liabilities, book value } & 40 & 27 \
\text { Stockholders' equity, book value } & 50 & 13
\end{array}$$ ?
What are the total assets and stockholders' equity (in $ millions) if the purchase method is used as the accounting method for this merger?
A) ?$130; $63
B) ?$130; $67
C) ?$132; $65
D) ?$132; $67

Question

Millicom is acquiring Vikonic's outstanding common stock for $15 million. Financial information (in $ millions) on these two firms prior to the acquisition is as follows: ?
? $$\begin{array} { l r r } 
& \text { Millicom}& \text {  Vikonic } \
\text { Total assets, book value } & \$ 90 & \$ 40 \
\text { Liabilities, book value } & 40 & 27 \
\text { Stockholders' equity, book value } & 50 & 13
\end{array}$$ ?
What are the total assets and stockholders' equity (in $ millions) if the purchase method is used as the accounting method for this merger?
A) ?$130; $63
B) ?$130; $67
C) ?$132; $65
D) ?$132; $67

Quizplus · Accepted Answer

Under the purchase method, the acquiring company (Millicom) records the assets and liabilities of the acquired company (Vikonic) at their fair market values at the time of acquisition. The purchase price ($15 million) exceeds Vikonic's book value of equity ($13 million), indicating goodwill of $2 million ($15 million - $13 million). Therefore, the total assets after the merger are Millicom's assets ($90 million) plus Vikonic's assets ($40 million) plus the goodwill ($2 million), totaling $132 million. The total stockholders' equity is Millicom's equity ($50 million) plus the equity purchased from Vikonic ($13 million), totaling $63 million.

Millicom Is Acquiring Vikonic's Outstanding Common Stock for $15 Million