Homework SoursePerry Company acquires 100 of the stock of Hurley Corporatio
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2017, for $3,800 cash. As of that date Hurley has the following trial balance:
Net income and dividends reported by Hurley for 2017 and 2018 follow:
The fair value of Hurley’s net assets that differ from their book values are listed below:
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life .
1. Compute the amount of Hurley\'s inventory that would be reported in a January 1, 2017, consolidated balance sheet.
Multiple Choice
a. $800.
b. $100.
c. $900.
d. $150.
e. $0.
2. Compute the amount of Hurley\'s buildings that would be reported in a December 31, 2017, consolidated balance sheet.
Multiple Choice
a. $1,560.
b. $1,260.
c. $1,440.
d. $1,160.
e. $1,140.
3. Compute the amount of Hurley\'s buildings that would be reported in a December 31, 2018, consolidated balance sheet.
Multiple Choice
a. $1,620.
b. $1,380.
c. $1,320.
d. $1,080.
e. $1,500.
| Debit | Credit | ||||||
| Cash | $ | 500 | |||||
| Accounts receivable | 600 | ||||||
| Inventory | 800 | ||||||
| Buildings (net) (5 year life) | 1,500 | ||||||
| Equipment (net) (2 year life) | 1,000 | ||||||
| Land | 900 | ||||||
| Accounts payable | $ | 400 | |||||
| Long-term liabilities (due 12/31/20) | 1,800 | ||||||
| Common stock | 1,000 | ||||||
| Additional paid-in capital | 600 | ||||||
| Retained earnings | 1,500 | ||||||
| Total | $ | 5,300 | $ | 5,300 | |||
Solution
1. Compute the amount of Hurley\'s inventory that would be reported in a January 1, 2017, consolidated balance sheet.
Multiple Choice
a. $800.
b. $100.
c. $900.
d. $150.
e. $0.
Ans is A $800, since there is no difference in inventory fair value and book value, as given in data.
2. Compute the amount of Hurley\'s buildings that would be reported in a December 31, 2017, consolidated balance sheet.
Multiple Choice
a. $1,560.
b. $1,260.
c. $1,440.
d. $1,160.
e. $1,140.
Ans is B $1,260
Explanation: the subsidiary’s book value less the $300 fair-value reduction allocation plus the current year expense reduction of $60.(1500-300+60)
3. Compute the amount of Hurley\'s buildings that would be reported in a December 31, 2018, consolidated balance sheet.
Multiple Choice
a. $1,620.
b. $1,380.
c. $1,320.
d. $1,080.
e. $1,500.
Ans is C $1,320
Explanation: the subsidiary’s book value less the $300 fair-value reduction allocation plus the current year and next year expense reduction of $120.(1500-300+60+60)
