Question

On January 1, 2015, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination, under the acquisition method of accounting for business combinations?

Answer 1

Answer:

Book value of building $ 120,000

Allocation of difference  $30,000

Fenton’s building for consolidation  $ 150,000

Explanation:

Under the acquisition method, in the consolidated balance sheet, the buildings of the Fenton (subsidiary company) will be appeared at the fair values on the acquisition date.Fair value of the buildings is $150000.So, Buildings will be recorded at this amount in the consolidated balance sheet, with the adjustment of $30000.