Snowflake Corp -Based on the Information Concerning Snowflake Corp

question 51

Multiple Choice

Snowflake Corp.
Penguin, Inc.acquires 100% of the outstanding shares of Snowflake Corp.for $2,250,000 and accounts for the transaction using the purchase method.Snowflake's balance sheet at the acquisition date is as follows:

Snowflake, Corp.
Balance Sheet
Acquisition Date
$\begin{array}{lrr} & \begin{array}{r}\text { Historical } \\ \text { Cost }\end{array} & \begin{array}{r}\text { Current } \\ \text { Market } \\ \text { Value }\end{array} \\ \text { Assets } & \$ 900,000 & \$ 900,000 \\ \text { Current Assets } & \$ 875,000 & \$ 1,250,000 \\ \text { Depreciable Assets less Accumulated Depreciation } & & \\ \text { Goodwill } & \$ 1,775,000 & \\ \text { Total Assets } & & \\ \text { Liabilities and Equities } & & \\ \text { Liabilities } & \$ 1,100,000 & \$ 1,100,000 \\ \text { Deferred Income Tax Liability } & \$ 125,000 & \$ 125,000 \\ \text { Shareholders' Equity } & \$ 550,000 & \\ \text { Total Liabilities and Equities } & \$ 1,775,000 & \end{array}$


-Based on the information concerning Snowflake Corp.what is the market value of the company's shareholders' equity at the acquisition date?

• A) $1,775,000
• B) $475,000
• C) $2,250,000
• D) $0

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Definitions:

Sales Ratio

A metric that compares a particular figure or cost to the total sales, providing insight into various financial aspects of a business.

Variable Costs

Expenditures that fluctuate based on the volume of output or services provided by an enterprise.

Break-Even Point

The point at which total costs and total revenue are equal, leading to neither profit nor loss.

Sales Mix

Sales mix refers to the proportion of different products or services that a company sells, significantly impacting its overall profitability.