Question

Use the following facts for Multiple Choice problems 38 and 39: Assume on January 1, 2019, an investor company acquired 100% of the outstanding voting common stock of an investee company. The following financial statement information is for the investor company and the investee company on January 1, 2019, prepared immediately before this transaction. Book Values Investor Investee Receivables & inventories Land.. Property & equipment, net Total assets. $ 100,000 200,000 225,000 $ 525,000 $ 50.000 +10 80,000 - 5 100,000 +26 $ 230,000 Liabilities... Common stock ($2 par) Additional paid-in capital. Retained earnings Total liabilities & equity $150,000 20.000 280,000 75,000 $ 50.000 -7 20,000 140,000 20.000 $230,000 $525,000 a. 38. Compute the investment account (fair value equals book value) Assume the fair values of the investee's net assets approximated the recorded book values of the in- vestee's net assets, and the transaction resulted in no recorded goodwill or bargain purchase gain. What is the balance in the pre-consolidation "investment in investee" account on the investor company's books on January 1, 2019, immediately after the acquisition of the investee company voting common stock? $180,000 b. $160,000 c. $230,000 d. Not enough information provided 39. Compute the investment account (fair value differs from book value) Assume the fair values of the investee's net assets approximated the recorded book values of the in- vestee's net assets, except the fair value of receivables and inventories is $10,000 higher than book value, the fair value of land is $5,000 lower than book value, the fair value of property and equipment is $20,000 higher than book value and the fair value of liabilities is $7,000 lower than book value. In addition, the transaction resulted in goodwill in the amount of $25,000. What is the balance in the pre- consolidation investment in investee" account on the investor company's books on January 1, 2019. immediately after the acquisition of the investee company voting common stock? $262.000 b. $237,000 $287.000 d. Not enough information provided c.

Answer 1

Answer 38:	$     180,000	A
Answer 39:	$     237,000	B

Calculation

	Answer 38	Answer 39
Book value of investee company
Common stock	$        20,000	$        20,000
Additional paid in capital	$     140,000	$      140,000
Retained earnings	$        20,000	$        20,000
Book value of investee company	$     180,000	$      180,000
Book value of investee company	$     180,000	$      180,000
Add: Under valuation of receivables and inventories		$        10,000
Less: Over valuation of land		$        (5,000)
Add: Under valuation of property and equipment		$        20,000
Add: Over valuation of liabilities		$           7,000
Add: Value allocated to goodwill		$        25,000
Investment in investee company	$     180,000	$      237,000
Correct option	A	B