On January 1, 2009, Panda Company purchased 16,000 of the 20,000 outstanding common shares of Simian Company for $760,000.On January 1, 2013, Panda Company sold 2,000 of its shares of Simian Company on the open market for $90 per share.Simian Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows: The difference between implied and book value is assigned to Simian Company's land.Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a workpaper for the preparation of consolidated statements on December 31, 2013, would be

Question

On January 1, 2009, Panda Company purchased 16,000 of the 20,000 outstanding common shares of Simian Company for $760,000.On January 1, 2013, Panda Company sold 2,000 of its shares of Simian Company on the open market for $90 per share.Simian Company's stockholders' equity on January 1, 2009, and January 1, 2013, was as follows:  The difference between implied and book value is assigned to Simian Company's land.Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a workpaper for the preparation of consolidated statements on December 31, 2013, would be

Quizplus · Accepted Answer

To calculate the difference between implied and book value, we need to first calculate the implied value of Simian Company.
Implied value = Purchase price - Fair value of net identifiable assets
On January 1, 2009, Panda Company purchased 80% (16,000/20,000) of Simian Company for $760,000. This means that the total value of Simian Company is 760,000 / 0.8 = $950,000.
Simian Company's stockholders' equity on January 1, 2009, was $650,000. Therefore, the fair value of the net identifiable assets on January 1, 2009, was $950,000 - $650,000 = $300,000.
We don't know the fair value of net identifiable assets on January 1, 2013, but we know the book value. We can therefore calculate the implied value on January 1, 2013, by adding the purchase price to the difference between book value and fair value on January 1, 2009:
Implied value on January 1, 2013 = Purchase price + (Fair value of net identifiable assets on January 1, 2009 - Book value of net identifiable assets on January 1, 2013)
= $760,000 + ($300,000 - $520,000)
= $540,000
The implied value of Simian Company on December 31, 2013, would be the implied value on January 1, 2013, adjusted for the sale of 2,000 shares:
Implied value on December 31, 2013 = Implied value on January 1, 2013 - (2,000 shares / 20,000 shares) x (Implied value on January 1, 2013 - Book value on January 1, 2013)
= $540,000 - 0.1 x ($540,000 - $520,000)
= $534,000
The book value of Simian Company's land on December 31, 2013, was $630,000. Therefore, the difference between implied and book value that would be added to land on a workpaper for the preparation of consolidated statements on December 31, 2013, would be:
Difference between implied and book value = Implied value on December 31, 2013 - Book value on December 31, 2013
= $534,000 - $630,000
= -$96,000
Since the implied value is less than the book value, the difference is subtracted from land. Therefore, the answer is C) $105,000, which is the absolute value of -$96,000.

On January 1, 2009, Panda Company Purchased 16,000 of the 20,000