On December 31,20X8,Mercury Corporation acquired 100 percent ownership of Saturn Corporation.On that date,Saturn reported assets and liabilities with book values of $300,000 and $100,000,respectively,common stock outstanding of $50,000,and retained earnings of $150,000.The book values and fair values of Saturn's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had decreased by $5,000.
-Based on the preceding information,what amount of differential will appear in the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination,if the acquisition price was $240,000?
A)$0
B)$40,000
C)$25,000
D)$5,000

Question

Quizplus · Accepted Answer

The differential is the excess of the acquisition price over the fair value of the acquired company's net assets. In this case, the acquisition price was $240,000 and the fair value of Saturn's net assets was $300,000 - $100,000 + $10,000 - $5,000 = $205,000. Therefore, the differential is $240,000 - $205,000 = $40,000.

On December 31,20X8,Mercury Corporation Acquired 100 Percent Ownership of Saturn