Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31,2009.On the date of acquisition,Princeton held land with a book value of $150,000 and a fair value of $300,000;Sheffield held land with a book value of $100,000 and fair value of $500,000.Using the entity theory,at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?
A)$650,000
B)$500,000
C)$550,000
D)$375,000

Question

Quizplus · Accepted Answer

Under the entity theory, the consolidated balance sheet reflects the fair value of the assets of both the parent and the subsidiary. Therefore, the land would be reported at the fair value of Princeton's land ($300,000) plus the fair value of Sheffield's land ($500,000), totaling $800,000. However, since Princeton acquired 75% of Sheffield, the consolidated balance sheet reflects 100% of Sheffield's assets, so the land is reported at $800,000.

Princeton Company Acquired 75 Percent of the Common Stock of Sheffield