Question

Assume that on January 1, 2013, an investor company acquired 100% of the outstanding voting common stock of an investee company. The following financial statement information is for the investor company and the investee company on January 1, 2013, prepared immediately before this transaction. Book Values Investor Investee Receivables & inventories $100,000 $50,000 Land 200,000 100.000 Property & equipment 225.000 100.000 Total assets $525,000 $250,000 Liabilities $150,000 $80,000 Common stock ($2 par) 20,000 10,000 Additional paid-in capital 280.000 150.000 Retained earnings 75,000 10,000 Total liabilities & equity $525,000 $250,000 Compute the investment account (market value differs from book value) Assume that the fair values of the investee's net assets approximated the recorded book values of the investee's net assets, except the fair value of receivables and inventories is $15,000 higher than book value, the fair value of land is $5,000 lower than book value, the fair value of property and equipment is $20,000 higher than book value and the fair value of liabilities is $7,000 lower than book value. In addition, the transaction resulted in goodwill in the amount of $25,000. What is the balance in the preconsolidation "investment in investee" account on the investor company's books on January 1, 2013, immediately after the acquisition of the investee company voting common stock? Not enough information provided $25,000 $232,000 $170,000

Answer 1

Pageno Answer! Book Values Inyestee Receivable Inventories $ 50,000 Land $ 100.000 $ 100,000 Property 7 Equipment Good will Total aşgets $ 250,000 Liabilities $80,000 Net Aşşets = total asset& - Liabilities = 250,000 - 80,000 = ! 70,000

Pageno Receivable finventories = $50,000+ 15,000 = $65.000 Land = $100,000 - 5000 = 95000 Property & Equipment = 100,000 + 20,000 = 120,000 Good will = 25000 Total aggets = 65,000 +9.5000 +120000+25000 = 305,000 Liabilities = 80,000 - 1000 = 73,000 Acquistion Price = Total assetas - Liabiliter = 305,000-13,000 = 232000 Ans: C $232000 should be investment in Investee account