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 .

1. Compute the amount of Hurley's inventory that would be reported in a January 1, 2017, consolidated balance sheet.

Multiple Choice

a. $800.

b. $100.

c. $900.

d. $150.

e. $0.

2. Compute the amount of Hurley's buildings that would be reported in a December 31, 2017, consolidated balance sheet.

Multiple Choice

a. $1,560.

b. $1,260.

c. $1,440.

d. $1,160.

e. $1,140.

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

Multiple Choice

a. $1,620.

b. $1,380.

c. $1,320.

d. $1,080.

e. $1,500.

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

1. Compute the amount of Hurley's inventory that would be reported in a January 1, 2017, consolidated balance sheet.

Multiple Choice

a. $800.

b. $100.

c. $900.

d. $150.

e. $0.

Ans is A $800, since there is no difference in inventory fair value and book value, as given in data.

2. Compute the amount of Hurley's buildings that would be reported in a December 31, 2017, consolidated balance sheet.

Multiple Choice

a. $1,560.

b. $1,260.

c. $1,440.

d. $1,160.

e. $1,140.

Ans is B $1,260

Explanation: the subsidiary’s book value less the $300 fair-value reduction allocation plus the current year expense reduction of $60.(1500-300+60)

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

Multiple Choice

a. $1,620.

b. $1,380.

c. $1,320.

d. $1,080.

e. $1,500.

Ans is C $1,320

Explanation: the subsidiary’s book value less the $300 fair-value reduction allocation plus the current year and next year expense reduction of $120.(1500-300+60+60)

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