Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities: If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?

Question

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:  If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?

Quizplus · Accepted Answer

Since Watkins acquired all the outstanding stock of Glen, it has full control over Glen's assets, including the building. The initial cost for Glen was $450,000, and the book value of the building on December 31, 2012, is $200,000. Therefore, the building would be recorded at fair value on the consolidated balance sheet, which is $285,000 ( $200,000 + [$450,000 - $200,000]/5 years of remaining useful life). Thus, the answer is B.