Figure:
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: $$\begin{array} { | l | r | r | }
\hline & \text { Book } & \text { Fair } \
\hline & \text { Value } & \text { Value } \
\hline \text { Inventory (FIFO method) } & \$ 40,000 & \$ 50,000 \
\hline \text { Equipment (10-year life) } & 80,000 & 75,000 \
\hline \text { Building (20-year life) } & 200,000 & 300,000 \
\hline
\end{array}$$
-If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?

Question

Figure:
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: $$\begin{array} { | l | r | r | } 
\hline & \text { Book } & \text { Fair } \
\hline & \text { Value } & \text { Value } \
\hline \text { Inventory (FIFO method) } & \$ 40,000 & \$ 50,000 \
\hline \text { Equipment (10-year life) } & 80,000 & 75,000 \
\hline \text { Building (20-year life) } & 200,000 & 300,000 \
\hline
\end{array}$$
-If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?

Quizplus · Accepted Answer

The equipment's fair value at acquisition was $75,000, which is $5,000 less than its book value. This $5,000 difference is amortized over the equipment's 10-year life, resulting in an annual amortization of $500. By December 31, 2012, three years have passed, so the total amortization is $1,500. Therefore, the net fair value allocation is $75,000 - $1,500 = $73,500, but since the question asks for the allocation net of amortization, the negative impact is $(3,500).

Figure: Watkins, Inc -If Watkins Pays $450,000 in Cash for Glen, What Acquisition-Date

Figure:
Watkins, Inc -If Watkins Pays $450,000 in Cash for Glen, What Acquisition-Date