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Solution for Advanced Accounting 11, Chapter 1, Exercises Unit, [Based on AICPA] General problems

Answer for Advanced Accounting beams 11 [beams, Anthony, Betinghaus, Smith], Chapter 1 Business Combination, Page 19, Exercises Unit, E1-2 [Based on AICPA] General problems

1. Pat Corporation paid $100,000 cash for the net assets of Sag Company, which consisted of the following

Book Value Fair Value
Current assets $40,000 $56,000
Plant and equipment 160,000 160,000
Liabilities assumed (40,000) (36,000)
$160,000 $240,000
Assume Sag Company is dissolved. The plant and equipment acquired in this business combination should be recorded at:
a $220,000
b $200,000
c $183,332
d $180,000
Answer :
Plant and equipment should be recorded at the $220,000 fair value.

2. On April 1, Par Company paid $1,600,000 for all the issued and outstanding common stock of Son Corporation in a transaction properly accounted for as an acquisition. Son Corporation is dissolved. The recorded assets and liabilities of Son Corporation on April 1 follow:

Cash $160,000
Inventory 480,000
Property and equipment (net of accumulated depreciation of $640,000) 960,000
Liabilities (360,000)
On April 1, it was determined that the inventory of Son had a fair value of $380,000 and the property and equipment (net) had a fair value of $1,120,000. What is the amount of goodwill resulting from the acquisition?
a 0
b $100,000
c $300,000
d $360,000
Answer :
Investment $1,600,000
Less: Fair value of net assets
Cash $ 160,000
Inventory 380,000
Property and equipment — net 1,120,000
Liabilities (360,000) 1,300,000
$ 300,000

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