Question

1. The difference between the implied value and the book value of the company is calculated to be $200,000. Per review of the financial information provided by the company, the difference relates to tangibles and intangibles. Tangibles – Inventory and Property in the amount of $40,000 and $60,000 respectively. The remaining difference is associated with goodwill. Assuming that the inventory has not been sold, what would be the elimination entry to allocate this total difference in year of acquisition:

   		a. Dr. Inventory $40,000; Dr. Property $60,000, Dr. Goodwill $100,000 / Cr. Difference $200,000
   		b. Dr. COGS $40,000; Dr. Property $60,000, Dr. Goodwill $100,000 / Cr. Difference $200,000
   		c. No elimination of difference is necessary.

5 points   

QUESTION 4

1. Refer to question 3. For the difference associated with Property ($50,000). This is due to Property having a book and fair value amounting to $120,000 and $170,000 respectively (no residual value at the end). Assume that the Company uses 5 years to depreciate the life of its property (using straight line depreciation). What would be the amount of additional depreciation at the date of acquisition (1/1/2010):

   		a. $34,000
   		b. $24,000
   		c. $10,000
   		d. No additional depreciation expense

5 points   

QUESTION 5

1. Same as question 3 and 4. Calculate the new depreciation expense for the property at end of the year (1 year after the acquisition or 12/31/2010):

   		a. $34,000
   		b. $24,000
   		c. $10,000
   		d. No additional depreciation expense

Answer 1

Q NO .3- Answer - (c) ---- As the difference is in the negative side, there is no need of elimination entry.

Q no.4 - Answer - (c)----- As the inventory value is increased by 50000, for 5 years ,additional depreciation will be charged at 10000 a year.

Q no.5 - Answer- (a)---- The total depreciation that will be charged is 170000 - residual value divided by 5 years.