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 buildings that would be reported on a December 31,2010,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 buildings that would be reported on a December 31,2010,consolidated balance sheet.

Quizplus · Accepted Answer

We need to apply the acquisition method to calculate the consolidated balance sheet of Perry and Hurley.

Firstly, we need to record the acquisition of Hurley by Perry:

Cash                                              $3,800
   Goodwill (plug)                            $   330
   Investment in Hurley Corporation  $3,470

The fair value of Hurley's net assets is calculated as follows:

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 11ea88ab_df35_9fd4_bb89_0f03205d1e9c_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01_TB4174_01

The fair value of Hurley's net assets is $4,020 which is greater than the purchase price of $3,800. Therefore, $220 of goodwill is recognized.

Next, we need to calculate the consolidated balance sheet of Perry and Hurley as of December 31, 2010.

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 11ea88ab_df35_9fd4_bb89_0f03205d1e9c_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02_TB4174_02

Out of the total building's book value of $1,650, $330 is allocated to goodwill. Since this is an indefinite life asset, it is not depreciated. Therefore, the net book value of the building is $1,320 which will be reported on the consolidated balance sheet.

Hence, the answer is (C) $1,320.

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