Question

QUESTION 2 Use the following fact pattern for questions 1 through 5: Black Company purchased 100 percent of the common shares of White Company by issuing shares of common stock valued at $900,000. Selected accounts from Black's balance sheet at the date of combination are as follows: $720,000 1,000,000 840,000 1,100,000 Inventory Building and Equipment (net) Stock Retained Earnings Selected accounts from the balance sheet of White at acquisition are as follows: Inventory Building and Equipment (net) $200,000 900,000 450,000 450,000 (60,000) Stock ditional Paid-In Capital Retained Earnings On the date of purchase, White's inventory and buildings and equipment had fair values of $255,000 and $870,000, respectively. Based on the information given above, the amount to be reported in the consolidated balance sheet immediately after the combination for building and equipment (net) is: 1.$1,880,000 2.$1,870,000 3.$1,860,000 4. $1,000,000 5. None of the above

Answer 1

2.

Answer: 2; $1,870,000

Buildings and equipment are fixed asset; if its fair value drops compare to the book value, then only the fair value should be considered for recording. In this case W’s balance sheet shows the book value as $900,000; but its fair market value is $870,000; therefore, the figure $870,000 should be considered.

Consolidated amount of building and equipment = B’s book value + W’s fair value

                                                                               = 1,000,000 + 870,000

                                                                               = $1,870,000