Question

On December 31, 20X8, Pintz Corporation reported total assets of $900,000 and Still Company reported total assets of $470,000, common stock of $250,000 and retained earnings of $150,000.

On January 1, 20X9, Pintz acquired 100% of the common stock of Still Company for $540,000 cash. On the date of acquisition the fair value and the book value of Still Company's net assets were approximately equal with the exception of land which had a fair value of $40,000 over reported book value. On the consolidated balance sheet immediately after acquisition, what amount was reported for total assets?

A)   $970,000
B)   $1,370,000
C)   $1,410,000
D)   $1,510,000

Answer 1

The answer is D - $1,510,000

.

Computation:

	Amount	Amount
Holding company (Pintz Corporations's) assets:		$900,000
Fair value of Subsidiary company (Still Company's) assets:
Book value of total assets	$470,000
Excess of the value of land over book value	$40,000
Fair value of total assets		$510,000
Goodwill [Refer working note 1 below]		$100,000
TOTAL ASSETS		$1,510,000

.

Working Note 1 - Calculation of Goodwill (loss) on the purchase of Still Company
	Amount	Amount
Fair value of Subsidiary company (Still company's) assets:
Book value of total assets	$470,000
Excess of the value of land over book value	$40,000
Fair value of total assets		$510,000
Liabilities [Refer Working note 2 below]		$70,000
Net Assets    (Assets - Liabiliites)		$440,000
Consideration paid to Still Company		$540,000
Goodwill        [Conidertation paid - Net Assets acquired]		$100,000

.

Working note 2 - Computation of liabilities of Still Company by using accounting equation
Total Assets = Liabilities + Total Equity
Liabilities = Total assets - Total Equity
Total Assets		$470,000
Less: Equity
Common stock	$250,000
Retained Earnings	$150,000
Total equity		$400,000
Liabilities		$70,000