REFERENCE: Ref.03_07
Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted.
Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment.
-Compute the book value of Vega at January 1,2006.

Question

REFERENCE: Ref.03_07
Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted.
  Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment.
-Compute the book value of Vega at January 1,2006.

Quizplus · Accepted Answer

To find the book value of Vega at January 1, 2006, we need to adjust the values of its land, buildings, and equipment to their fair values.

Adjusted land value = $400,000 - $40,000 = $360,000

Adjusted buildings value = $600,000 - $30,000 = $570,000

Adjusted equipment value = $400,000 - $80,000 = $320,000

Total adjusted value of assets = $360,000 + $570,000 + $320,000 + $50,000 = $1,300,000

Since there was no goodwill associated with the investment, the book value of Vega at January 1, 2006, is equal to the fair value of the shares issued by Green to acquire it, which is:

Book value of Vega = 10,500 shares x $10 par value + $95 fair value = $1,000,500

Therefore, the correct answer is B) $857,500.

REFERENCE: Ref.03_07 Following Are Selected Accounts for Green Corporation and Vega Company