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 used, what amounts in the Building account appear in Duchess' separate balance sheet and in the consolidated balance sheet immediately after acquisition?

Question

Quizplus · Accepted Answer

Under push-down accounting, the acquired company's assets and liabilities are revalued at their fair values and the resulting gain or loss is recorded in the acquiring company's books. In this case, the fair value of Duchess' building is $500,000, which is $100,000 higher than its book value. Therefore, a gain of $100,000 will be recorded in Prince's books.

In Duchess' separate balance sheet, the building will appear at its fair value of $500,000. In the consolidated balance sheet, the building will appear at its fair value of $1,700,000 ($1,500,000 for Prince's building + $500,000 for Duchess' building - $300,000 gain on revaluation). Therefore, the correct answer is B ($500,000 and $1,700,000).

Prince Company Acquires Duchess, Inc