Figure:
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date. Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2010. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands).
-Compute consolidated revenues at date of acquisition.

Question

Figure:
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date.  Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2010. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands).
-Compute consolidated revenues at date of acquisition.

Quizplus · Accepted Answer

To compute consolidated revenues at date of acquisition, we need to sum up the revenues of both Atwood and Franz Companies.

Atwood Company: 
Net sales: $2,400 
Cost of goods sold: ($1,440) 
Gross profit: $960 
Operating expenses: ($480) 
Operating income: $480 
Gain on sale of plant assets: $75
Income before taxes: $555

Franz Company: 
Net sales: $1,500 
Cost of goods sold: ($825) 
Gross profit: $675 
Operating expenses: ($315) 
Operating income: $360 
Interest expense: ($90) 
Income before taxes: $270

Consolidated revenues will be: 
Atwood Company's net sales + Franz Company's net sales = $2,400 + $1,500 = $2,880.

Therefore, the correct answer is B.

Figure: Presented Below Are the Financial Balances for the Atwood Company