On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued S400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of S10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another S15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Мoody S 180 Osorio S 40 Cash Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) Equipment (net) Accounts payable Long-term liabilities Common stock ($1 par) Common stock ($20 par) Additional paid-in capital Retained earnings 1,260 440 480 100 (450) (1,290) (330) (80) (400) (1,080) (1,260) (240) (340) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60. What amount was recorded as goodwill arising from this acquisition? A. $230. B. $120. C. $520. D. None. There is a gain on bargain purchase of $230. E. None. There is a gain on bargain purchase of $265.
On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued S400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of S10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another S15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Мoody S 180 Osorio S 40 Cash Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) Equipment (net) Accounts payable Long-term liabilities Common stock ($1 par) Common stock ($20 par) Additional paid-in capital Retained earnings 1,260 440 480 100 (450) (1,290) (330) (80) (400) (1,080) (1,260) (240) (340) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60. What amount was recorded as goodwill arising from this acquisition? A. $230. B. $120. C. $520. D. None. There is a gain on bargain purchase of $230. E. None. There is a gain on bargain purchase of $265.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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