Question

1. Pacific Inc. acquires all of the voting stock of Skye Company for $300 million in cash. Skye's balance sheet at the date of acquisition is as follows (in millions):

   Skye Company

   Assets			Liabilities & equity
   Current assets	$ 75		Current liabilities	$ 80
   Land, buildings & equipment, net	1,200		Long-term liabilities	1,500
   			Capital stock	100
   			Retained deficit	(400)
   			Accumulated other comprehensive income	10
   	_____		Treasury stock	(15)
   Total assets	$1,275		Total liabilities & equity	$1,275

   
   Skye's land, buildings & equipment have a fair value of $1,000 million. Skye's other assets and liabilities are reported at amounts that approximate fair value. Skye has unreported identifiable intangibles with a fair value of $100 million that meet the criteria for capitalization.
   
   On the date of acquisition consolidation working paper, what is the effect of eliminating entry (R) on Investment in Skye?

   	A.	Credit of $605 million
   	B.	Debit of $175 million
   	C.	Credit of $795 million
   	D.	No effect

Answer 1

Answer: A Credit of $605 million. .. Explanation: The Journal Entry will be as follows Account Title and Explanation Identifiable Intangibles Goodwill Land, building & equipment Investment in Skye ...lin Millions) Debit ($) Eredit (6) $100 $ 705 . $200 $605