20 In a step acquisition situation, the date at which FASB requires the assets o
ID: 2597761 • Letter: 2
Question
20 In a step acquisition situation, the date at which FASB requires the assets of the acquired firm to be remeasured at fair value is: The date the first stock was bought by the acquirer The date at which the acquirer becomes the largest single shareholder, whether or not it has control The date at which the acquirer obtains control The last date on which any stock is bought, as long as the acquirer has enough stock to have control. a. b. c. d. 21.--P owns 100% of the stock in S. On January 1, 2016, P sells machinery that has a book value of $40,000 to S, for a sales price of $50,000 in cash. The machinery is being depreciated over a 10 year life. The net consolidation adjustments that wou to 2016 and 2017 consolidated net income would b a. Negative $9,000 in 2016 and positive $1000 in 2017 b. Negative $9,000 in 2016, and no adjustment in 2017 c. Negative $10,000 in 2016 and positive $1,000 in 2017 d. Negative $10,000 in 2016 and no adjustment in 2017 22. A downstream sale of inventory is one in which the parent buys from the subsidiary. (True/false) 23.--(True False). According to the FASB, it is optional for companies to allocate part of the effect of deferring intercompany gains on sales of inventory to noncontrolling interestsExplanation / Answer
20) The correct option is c) the date at which the acquirer obtains control.
21) The correct option is a) Negative $9,000 in 2016 and positive $1,000 in 2017.
As the holding company sold the machine to subsidiary company with a profit of $10,000 ($50,000-$40,000) in 2016, this gain of $10,000 need to be deducted from the consolidated net income and excess depreciation charged in 2016 and 2017 need to be added back in 2016 and 2017 [($50,000/10)-($40,000/10) = $1,000]
Therefore the net increase in 2016 is $9,000 ($10,000-$1,000) and the net increase in 2017 is $1,000.
22) False, the downstream sale of inventory is one in which the parent sells inventory to subsidiary.
23) False, It is not optional, it is compulsory to allocate the part of intercompany gains on sale of inventory to non controlling interest in the same year in which it is allocated to parent.
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