Question

Required information [The following information applies to the questions displayed below.) On July 1, TruData Company issues 11,200 shares of its common stock with a $5 par value and a $40 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's precombination book and fair values are shown below along with book values for TruData's accounts. Webstat Fair Values Revenues (1/1 to 7/1) Expenses (1/1 to 7/1) Retained earnings, 1/1 Cash and receivables Inventory Patented technology (net) Land Buildings and equipment (net) Liabilities Common stock Additional paid.in capital TruData Book Values $ (280,000) 148,000 (138,000) 156,000 176,000 230,000 408,000 108,000 (506,000) (284,000) (9,000) Webstat Book Values $ 138,000) 90,000 (160,000) 62,000 156,000 188,000 206.000 86,000 (374,000) (60,000) (32,000) 62,000 180,000 214,000 226,000 86,000 (342,000) On its acquisition-date consolidated balance sheet, what amount should TruData report as patented technology (net)?

Answer 1

At the time of acquisition of another entity, GAAP requires the acquirer to enter the assets and liabilities of acquiree in his books at the "Fair Value". Hence TruData shouls record the assets and liabilities of Webstat in his books at their fair value. Accordingly the value of patented technology in the consolidated balance sheet as on acquisition date is as follows :

Value of patented technology in TruData Books	Fair Value of Patented technology of Webstat	Total in Consolidated Balance Sheet	Answer
230,000 $	214,000 $	444,000 $	D (Last option)