Question

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2011....

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2011. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination?

a.$650,000

b.$500,000

c.$550,000

d.$375,000

On January 1, 2011, Primer Corporation acquired 80 percent of Sutter Corporation's voting common stock. Sutters's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition. At what amount will Sutter’s buildings and equipment will be reported in the consolidated statements ?

a.

$280,000
b.

$340,000
c.

$300,000
d.

$350,000

P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were

Currentassets      $120,000

Noncurrentassets   180,000

Total    $300,000

How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company?

a.

An ordinary gain of $45,000 should be recorded.
b.

The $45,000 difference should be credited to retained earnings.
c.

The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000.
d.

The noncurrent assets should be recorded at $ 135,000.
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Homework Answers

Answer #1

1. Answer is a.$650,000

Land to be reported in the consolidated balance sheet = Book value of the parent company + Fair value of the subsidiary company = $150,000 + $500,000 = $650,000

2. Answer is d.$350,000

Sutter's building and equipment will be reported in the Consolidated statement should be the 'Fair value of the assets'. Hence, amount building and equipment to be reported is $350,000

3. Answer is d. The non-current assets should be recorded at $135,000

Net assets of S company = $ 270,000. It should be the acquisition cost of P company. Instead of $270,000 P company paid $225,000. The difference of $45,000 due to reduction of fair value of the S company's non-current assets.

Hence non-current assets should be recorded at $135,000 by reducing $45,000 from total non-current assets of $180,0000

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