10.--On January 1, 2016, Pal Corp buys 100% of the shares of Sal Corp for $10 mi

Question

10.--On January 1, 2016, Pal Corp buys 100% of the shares of Sal Corp for $10 million. At that date, Sal has book value of $7 million. Its shareholder equity accounts include S million of common stock and $2 million of retained earnings. Sal also has various stomer contracts worth $3 million, which are not recorded as assets on Sal's books. Sal is NOT dissolved. A consolidate balance sheet is being prepared as of the date of acquisition. Which of the following consolidation entries would be appropriate, as of the acquisition date (in millions)? a. Dr. Investment in Sal 10 Cr. Common stock Cr. Retained earnings Cr. Gain on bargain purchase 3 b. Dr. Common stock Dr. Retained earnings Dr. Customer contracts 3 Cr. Investment in Sal 10 c. Dr. Goodwill 10 Cr. Investment in Sal 10 d. Dr. Investment in Sal 10 Cr. Common Stock Cr. Retained earnings Cr. Customer contracts 3 11 Pe .-- at buys 100% of Seat on August 1, 2016, which is a correct statement regarding the consolidated income statements dated December 31, 2016? a. The statement will only include sales for Peat. b. The statement will include 12 months of sales for each company c· The statement will include only 5 months of sales for each company d. The statement will include 12 months of sales for Peat and 5 for Sat.

Explanation / Answer

ans)

10) Option (D) Dr. Investment in Sal 10

Cr. Common stock 5

Cr. Retained earnings 2

Cr. Customer contracts 3

11) Option (D) The statement will include 12 months of sales for peat and 5 for Sat

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