Company P acquired 60% of the outstanding common stock of Company S by issuing c

Question

Company P acquired 60% of the outstanding common stock of Company S by issuing common stock with<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

a market value of $420,000 on January 1, 20X3. The balance sheet of Company S was as follows on the

acquisition date:

Assets Liabilities and Equity

Cash $ 50,000 Liabilities $ 80,000

Inventory 100,000 Common Stock, $10 par 100,000

Land 100,000 Other paid-in capital 120,000

Building (net) 250,000Retained earnings 200,000

Total $500,000 Total $500,000

The market values were as follows: Inventory, $130,000; Land, $150,000; Building, $400,000. The inventory

was sold during 20X3, the building has a 10-year life, and any excess purchase price is attributed to goodwill.

What adjustment is needed to consolidated net income to arrive at cash flow-operations for 20X4, under the

indirect method, as a result of amortization of excesses from the purchase?

The answer is $15,000. Can you show me the answer is calculated?

Explanation / Answer

Hi,

Please find the answer as follows:

=400000 (Market Value of building) - 250000 (Book Value of Building) = 150000/10 = 15000

Thanks.

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