Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
-If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?

Question

Quizplus · Accepted Answer

Under the purchase method, the excess consideration paid over the fair value of the net assets acquired is attributed to goodwill. Without push-down accounting, the building accounts of Prince and Duchess will be carried forward as follows:

Prince building: $1,200,000
Duchess building: $400,000

In the consolidated balance sheet, the buildings will be shown at their fair values on the acquisition date, as follows:

Prince building: $1,500,000
Duchess building: $500,000

Therefore, the amounts that will appear in the Building account on Duchess' separate balance sheet and on the consolidated balance sheet are $400,000 and $1,700,000, respectively. Hence, the best answer choice is C.

Prince Company Acquires Duchess, Inc