Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 201

Question

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2017, for $3,800 cash. As of that date Hurley has the following trial balance:

Net income and dividends reported by Hurley for 2017 and 2018 follow:

The fair value of Hurley’s net assets that differ from their book values are listed below:

Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life .

Compute the amount of Hurley's buildings that would be reported in a December 31, 2018, consolidated balance sheet.

a) $1,080.

b) $1,500.

c) $1,320.

d) $1,620.

e) $1,380.

Debit Credit Cash $ 500 Accounts receivable 600 Inventory 800 Buildings (net) (5 year life) 1,500 Equipment (net) (2 year life) 1,000 Land 900 Accounts payable $ 400 Long-term liabilities (due 12/31/20) 1,800 Common stock 1,000 Additional paid-in capital 600 Retained earnings 1,500 Total $ 5,300 $ 5,300

Explanation / Answer

Answer

c ) 1320

the subsidiary book value = 300 fair value reduction allocation plus

the current and next year expense reduction of 120 = 1500 - 300 + 60 + 60

= 1320

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