Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: Net income and dividends reported by Clark for 2020 and 2021 follow:
The fair value of Clark's net assets that differ from their book values are listed below:
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's equipment that would be reported in a December 31, 2020, consolidated balance sheet.

Question

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance:  Net income and dividends reported by Clark for 2020 and 2021 follow:
 The fair value of Clark's net assets that differ from their book values are listed below:
 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's equipment that would be reported in a December 31, 2020, consolidated balance sheet.

Quizplus · Accepted Answer

The fair value of Clark's equipment is $1,500, which is $325 higher than its book value of $1,175 ($1,500 - $1,175 = $325). Since the excess of consideration transferred over fair value of net assets acquired ($4,100 - $3,500 = $600) is considered goodwill with an indefinite life, we do not adjust the equipment's book value by the difference between its fair value and its book value. Therefore, the equipment's value in the consolidated balance sheet would be $1,175 (its book value).

Jackson Company Acquires 100% of the Stock of Clark Corporation