REFERENCE: Ref.03_12
Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities:
-If the transaction instead occurred on January 1,2008 under a SFAS 141 purchase combination,and Watkins pays $300,000 in cash for Glen,at what amount would the subsidiary's Equipment be represented in a December 31,2011 consolidation?

Question

REFERENCE: Ref.03_12
Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: 
-If the transaction instead occurred on January 1,2008 under a SFAS 141 purchase combination,and Watkins pays $300,000 in cash for Glen,at what amount would the subsidiary's Equipment be represented in a December 31,2011 consolidation?

Quizplus · Accepted Answer

Under a SFAS 141 purchase combination, the fair value of the subsidiary's assets is recorded at the acquisition date. Therefore, on January 1, 2008, when Watkins acquires Glen, the $300,000 purchase price will have to be allocated to the three assets Glen owns- Equipment, Land, and Building. 
Assuming the fair value of Land and Building remain the same, and the Equipment has a useful life of 5 years, the depreciation for the equipment recorded in 2008, 2009, 2010 and 2011 would be $54,000 ($108,000/2 years * 4 years).
Therefore, as of December 31, 2011, the Equipment would have a net book value of $46,000 ($100,000 - $54,000), and would be represented at fair value of $52,000 ($46,000 + $6,000 goodwill) in the consolidated financial statements.
Thus, the correct answer is C.

REFERENCE: Ref.03_12 Watkins,Inc.acquires All of the Outstanding Stock of Glen Corporation on Corporation