On January 1, 20X8, Chariot Company acquired 100 percent of Stryder Company for $220,000 cash. The trial balances for the two companies on December 31, 20X8, included the following amounts:
On the acquisition date, Stryder reported net assets with a book value of $170,000. A total of $10,000 of the acquisition price is applied to goodwill, which was not impaired in 20X8. Stryder's depreciable assets had an estimated economic life of 10 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment. Chariot used the equity method in accounting for its investment in Stryder. Analysis of receivables and payables revealed that Stryder owed Chariot $10,000 on December 31, 20X8.

-Based on the information provided,the amount of differential assigned to buildings and equipment that is amortized for the year is:
A) $5,000.
B) $4,000.
C) $10,000.
D) $3,600.

Question

On January 1, 20X8, Chariot Company acquired 100 percent of Stryder Company for $220,000 cash. The trial balances for the two companies on December 31, 20X8, included the following amounts:
On the acquisition date, Stryder reported net assets with a book value of $170,000. A total of $10,000 of the acquisition price is applied to goodwill, which was not impaired in 20X8. Stryder's depreciable assets had an estimated economic life of 10 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment. Chariot used the equity method in accounting for its investment in Stryder. Analysis of receivables and payables revealed that Stryder owed Chariot $10,000 on December 31, 20X8.
 
-Based on the information provided,the amount of differential assigned to buildings and equipment that is amortized for the year is:
A) $5,000. 
B) $4,000. 
C) $10,000. 
D) $3,600.

Quizplus · Accepted Answer

The total differential between fair value and book value is $50,000 ($220,000 purchase price - $170,000 book value of Stryder's net assets). Of this amount, $10,000 is allocated to goodwill, leaving $40,000 to be allocated to tangible assets. Since the entire differential related to buildings and equipment, we can conclude that $40,000 is allocated to those assets. Assuming straight-line depreciation over 10 years, the annual amortization is $4,000 ($40,000 ÷ 10 years). Therefore, the answer is B.

On January 1, 20X8, Chariot Company Acquired 100 Percent of Stryder