Panda Corporation purchased 100,000 previously unissued shares of Skunk Company's $10 par value common stock directly from Skunk for $2,200,000.Skunk's stockholders' equity immediately before the investment by Panda consisted of $3,000,000 of common stock and $4,800,000 in retained earnings.What is Panda's book value of equity in the net assets of Skunk?

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The net assets acquired by Panda are $4,800,000 (retained earnings) + $1,000,000 (par value of 100,000 shares at $10 each) = $5,800,000. However, Panda only paid $2,200,000 for the 100,000 shares, so its book value of equity in the net assets of Skunk is $2,200,000 + $3,600,000 (the excess of $5,800,000 over the purchase price) = $5,800,000. This book value of equity is then divided by the number of shares purchased by Panda (100,000) to arrive at a per-share book value of equity of $58. Therefore, Panda's book value of equity in the net assets of Skunk is $2,200,000 (the amount paid for the 100,000 shares) + $5,800,000 (Panda's share of the net assets acquired) × (100,000 shares / 300,000 total shares outstanding) = $2,500,000.

Panda Corporation Purchased 100,000 Previously Unissued Shares of Skunk Company's