On July 1, 2009, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows:

-Based on the preceding information,the differential reflected in a consolidation workpaper to prepare a consolidated balance sheet immediately after the business combination is:
A)$0.
B)$25,000.
C)$70,000.
D)$45,000.

Question

On July 1, 2009, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows:
 
-Based on the preceding information,the differential reflected in a consolidation workpaper to prepare a consolidated balance sheet immediately after the business combination is:
A)$0. 
B)$25,000. 
C)$70,000. 
D)$45,000.

Quizplus · Accepted Answer

To prepare a consolidated balance sheet, we need to calculate the differential, which is the excess of the purchase price over the fair value of the net assets acquired. The fair value of Tinsel's net identifiable assets is $270,000 ($180,000 + $90,000), but Link Corporation paid $340,000. Therefore, the differential is $70,000 ($340,000 - $270,000), which should be reflected in the consolidation workpaper. So, the correct choice is C.

On July 1, 2009, Link Corporation Paid $340,000 for All