A Inc.has purchased all of the outstanding voting shares of B Inc on January 1,20X1.On the date of acquisition,the book value of B's identifiable assets was equal to their fair market values with the exception B's Plant and Equipment,which had a Fair Market Value of $1,200,000.On the date of acquisition,A and B had Plant and Equipment with book values of $2,000,000 and $1,000,000 respectively.Both companies' Plant and Equipment are fully depreciated)Assuming that any excess fair market value on Plant and Equipment is to be amortized over ten years,the Plant and Equipment would be shown on A's Consolidated Balance Sheet in what amount on December 31,20x3?
A)$3,200,000
B)$3,140,000
C)$3,000,000
D)$2,940,000

Question

Quizplus · Accepted Answer

The excess fair market value on B's Plant and Equipment is $1,200,000 - $1,000,000 = $200,000. This excess fair market value is to be amortized over ten years, so the annual amortization expense is $200,000 / 10 = $20,000.
On the consolidated balance sheet, A's Plant and Equipment would be shown at its book value of $2,000,000.
B's Plant and Equipment would be shown at its fair market value of $1,200,000, reduced by accumulated amortization of $20,000 * 3 = $60,000. Therefore, the net amount shown for B's Plant and Equipment would be $1,200,000 - $60,000 = $1,140,000.
The total amount shown for Plant and Equipment on the consolidated balance sheet would be $2,000,000 + $1,140,000 = $3,140,000. Therefore, the correct answer is B.

A IncHas Purchased All of the Outstanding Voting Shares of B