REFERENCE: Ref.03_05
Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance;
SHAPE \* MERGEFORMAT
Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used.
-Compute the amount of Hurley's equipment that would be reported on a December 31,2009,consolidated balance sheet.

Question

REFERENCE: Ref.03_05
Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance;
SHAPE \* MERGEFORMAT
  Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used.
-Compute the amount of Hurley's equipment that would be reported on a December 31,2009,consolidated balance sheet.

Quizplus · Accepted Answer

According to the information given, the excess of the consideration transferred over the fair value is considered goodwill. Therefore, we need to allocate the purchase price of $3,800 to the fair value of the net assets acquired (excluding goodwill).

From the trial balance, we can see that Hurley's equipment has a book value of $1,000. However, we are not given any information about the fair value of the equipment. Therefore, we cannot assume that its fair value is the same as its book value.

However, we are told that the FIFO inventory valuation method is used by the company. This suggests that the inventory is valued at the lower of cost or market (i.e., replacement cost). Therefore, we can assume that the inventory has a fair value of $1,250 ($1,000 book value + $250 increase in market value).

To allocate the purchase price, we can use the following formula:

Purchase price = Fair value of net assets acquired + Goodwill

$3,800 = $1,250 + Equipment + Goodwill

Solving for Equipment, we get:

Equipment = $1,125

Therefore, the amount of Hurley's equipment that would be reported on a December 31, 2009, consolidated balance sheet is $1,125.

REFERENCE: Ref.03_05 Perry Company Obtains 100% of the Stock of Hurley Corporation