Elway Company acquired 80% of the outstanding shares of Warner Company for $152 in cash.Elway Company's assets prior to the acquisition were $700.Warner Company's assets before the acquisition were $400.The total assets that would appear on the consolidated balance sheet prepared immediately after the acquisition of Warner Company's stock is: _____.
A)$400
B)$1,100
C)$700
D)$948

Question

Quizplus · Accepted Answer

To prepare the consolidated balance sheet, we need to add the assets of both Elway and Warner companies. However, we should only include 80% of Warner's assets, as Elway acquired only 80% of the outstanding shares.

Elway's assets before the acquisition were $700, and we need to add 80% of Warner's assets, which is $320 (80% x $400). Therefore, the total assets on the consolidated balance sheet would be: $700 + $320 = $1,020.

However, we also know that Elway paid $152 in cash to acquire Warner's stock. This cash payment is now an asset of Warner Company, so we need to add it to the total assets. Therefore, $1,020 + $152 = $1,172.

But we need to adjust for the fact that Elway only owns 80% of Warner Company. So we need to subtract 20% of the cash paid from the total assets. 20% of $152 is $30.4 (rounded to $30). Therefore, the total assets on the consolidated balance sheet would be: $1,172 - $30 = $1,142.

Therefore, the correct answer is D) $948, because $1,142 - 80% of Warner's assets ($320) equals $948.

Elway Company Acquired 80% of the Outstanding Shares of Warner