ParentCo has acquired FinanceCo, and is trying to value the receivables. The current gross amount of receivables is $500,000. The contra-account, allowance for doubtful accounts, is $50,000. Assume the fair value is the same as the net value of the assets. What value should ParentCo put FinanceCo's receivables on its books for?
A) $500,000 gross receivables amount, with a $50,000 allowance for doubtful accounts.
B) $450,000, with no contra-account balance
C) $500,000 with no contra-account balance.
D) $450,000 with a $50,000 allowance for doubtful accounts.

Question

Quizplus · Accepted Answer

The correct value to put FinanceCo's receivables on ParentCo's books is $450,000, which is the net value after accounting for the allowance for doubtful accounts ($500,000 gross receivables - $50,000 allowance for doubtful accounts). This approach aligns with the assumption that the fair value is the same as the net value of the assets.

ParentCo Has Acquired FinanceCo, and Is Trying to Value the Receivables