Company P acquired 60% of the outstanding common stock of Company S by issuing common stock with a market value of $420,000 on January 1, 2016.The balance sheet of Company S was as follows on the acquisition date:
$$\begin{array} { l r l r }
\text { Assets } & & \text { Liabilities and Equity } & \
\text { Cash } & \$ 50,000 & \text { Liabilities } & \$ 80,000 \
\text { Inventory } & 100,000 & \text { Common stock, } \$ 10 \text { par } & 100,000 \
\text { Land } & 100,000 & \text { Other paid-in capital } & 120,000 \
\text { Building (net) } & 250,000 & \text { Retained earnings } & 200,000 \
\quad \text { Total } & \$ 500,000 & \text { Total } & \$ 500,000
\end{array}$$ The market values were as follows: Inventory, $130,000; Land, $150,000; Building, $400,000.The inventory was sold during 2016, the building has a 10-year life, and any excess purchase price is attributed to goodwill.What adjustment is needed to consolidated net income to arrive at cash flow-operations for 2017, under the indirect method, as a result of amortization of excesses from the purchase?

Question

Company P acquired 60% of the outstanding common stock of Company S by issuing common stock with a market value of $420,000 on January 1, 2016.The balance sheet of Company S was as follows on the acquisition date: 
$$\begin{array} { l r l r } 
\text { Assets } & & \text { Liabilities and Equity } & \
\text { Cash } & \$ 50,000 & \text { Liabilities } & \$ 80,000 \
\text { Inventory } & 100,000 & \text { Common stock, } \$ 10 \text { par } & 100,000 \
\text { Land } & 100,000 & \text { Other paid-in capital } & 120,000 \
\text { Building (net) } & 250,000 & \text { Retained earnings } & 200,000 \
\quad \text { Total } & \$ 500,000 & \text { Total } & \$ 500,000
\end{array}$$ The market values were as follows: Inventory, $130,000; Land, $150,000; Building, $400,000.The inventory was sold during 2016, the building has a 10-year life, and any excess purchase price is attributed to goodwill.What adjustment is needed to consolidated net income to arrive at cash flow-operations for 2017, under the indirect method, as a result of amortization of excesses from the purchase?

Quizplus · Accepted Answer

The Answer of Company P acquired 60% of the outstanding common stock of Company S by issuing common stock with a market value of $420,000 on January 1, 2016.The balance sheet of Company S was as follows on the acquisition date: 
$$\begin{array} { l r l r } 
\text { Assets } & & \text { Liabilities and Equity } & \
\text { Cash } & \$ 50,000 & \text { Liabilities } & \$ 80,000 \
\text { Inventory } & 100,000 & \text { Common stock, } \$ 10 \text { par } & 100,000 \
\text { Land } & 100,000 & \text { Other paid-in capital } & 120,000 \
\text { Building (net) } & 250,000 & \text { Retained earnings } & 200,000 \
\quad \text { Total } & \$ 500,000 & \text { Total } & \$ 500,000
\end{array}$$ The market values were as follows: Inventory, $130,000; Land, $150,000; Building, $400,000.The inventory was sold during 2016, the building has a 10-year life, and any excess purchase price is attributed to goodwill.What adjustment is needed to consolidated net income to arrive at cash flow-operations for 2017, under the indirect method, as a result of amortization of excesses from the purchase?

Company P Acquired 60% of the Outstanding Common Stock of Company