At the date of acquisition, a subsidiary's assets and liabilities are reported at amounts approximating fair...
- At the date of acquisition, a subsidiary's assets and
liabilities are reported at amounts approximating fair value,
except it has previously unreported identifiable intangibles of $25
million (5-year life, straight-line), and its plant assets are
overvalued by $40 million (10-year life, straight-line).
Revaluation write-offs are reported as adjustments to operating
expenses.
Eliminating entry (O) at the end of the second year following acquisition:
|
A. |
Reduces operating expenses by $9 million. | |
|
B. |
Increases operating expenses by $1 million. |
|
|
C. |
Increases operating expenses by $18 million. |
|
|
D. |
Increases operating expenses by $2 million. |
Homework Answers
Answer:- C. Increase in Operating expenses by $18 million
Computation:-
Amortization cost = $25million / 5 = $5 million per year
Depreciation on overvalued plant assets = $40million / 10 = $4 million per year
Second year Operating expenses = ($5 million + $4 million) * 2 years = $18 million.
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