When Valley Co

question 89

Multiple Choice

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?

• A) $40,000.
• B) $50,000.
• C) $75,000.
• D) $100,000.
• E) $125,000.

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Definitions:

Equity Value

The value of a company’s shares; it represents the residual value to shareholders after debts and liabilities have been settled.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without having to increase financial leverage or equity financing.

Return On Equity

A financial ratio that measures the profitability of a business in relation to the amount of equity, indicating how effectively management is using shareholders’ funds.

Payout Ratio

A financial metric showing the proportion of earnings a company pays to its shareholders in the form of dividends.