Pagach Company purchased 100% of the voting common stock of Rage Company for $1,800,000.The following book and fair values are available:
$\begin{array}{lrr}
& \text { Book Value } & \text { Fair Value } \
\text { Current assets } & \$ 150,000 & \$ 300,000 \
\text { Land and building } & 280,000 & 280,000 \
\text { Machinery } & 400,000 & 700,000 \
\text { Bonds payable } & (300,000) & (250,000) \
\text { Goodwill } & 150,000 & ?
\end{array}$
The bonds payable will appear on the consolidated balance sheet

A)at $300,000 (with no premium or discount shown).
B)at $300,000 less a discount of $50,000.
C)at $0; assets are recorded net of liabilities.
D)at an amount less than $250,000 since it is a bargain purchase.

Question

Pagach Company purchased 100% of the voting common stock of Rage Company for $1,800,000.The following book and fair values are available: 
$\begin{array}{lrr}
& \text { Book Value } & \text { Fair Value } \
\text { Current assets } & \$ 150,000 & \$ 300,000 \
\text { Land and building } & 280,000 & 280,000 \
\text { Machinery } & 400,000 & 700,000 \
\text { Bonds payable } & (300,000) & (250,000) \
\text { Goodwill } & 150,000 & ?
\end{array}$
 The bonds payable will appear on the consolidated balance sheet

A)at $300,000 (with no premium or discount shown).
B)at $300,000 less a discount of $50,000.
C)at $0; assets are recorded net of liabilities.
D)at an amount less than $250,000 since it is a bargain purchase.

Quizplus · Accepted Answer

The bonds payable will appear at the book value of $300,000 less a discount of $50,000 to adjust to the fair value of $250,000. This reflects the difference between the book value and the fair value of the liability.

Pagach Company Purchased 100% of the Voting Common Stock of Rage