Black Co. acquired 100% of Blue, Inc. on January 1, 2020. On that date, Blue had...

Black Co. acquired 100% of Blue, Inc. on January 1, 2020. On that date, Blue had land with a book value of $38,000 and a fair value of $49,000. Also, on the date of acquisition, Blue had a building with a book value of $250,000 and a fair value of $460,000. Blue had equipment with a book value of $340,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2020 related to the acquisition allocations of Blue

Expert Solution

Solution: In the case of the fair value, there will be adjustments regarding extra depreciation.

In the case of land, there will be no depreciation charged.
In the case of Building, there is a fair value upward occurred so we have to charge an extra depreciation (expense).

Extra depreciation = fair value movement/remaining useful life

= $210,000/10 years

= $21,000 [since the expenses are increasing, we can denominate as positive]

Equipment, there is a fair value downward, instead of extra depreciation, we will have reduction in depreciation, so we have to reduce the extra depreciation already charged in the books of accounts.

Reduction in depreciation expense = $60,000 fair value downward/5 year remaining life

= ($12,000) [there is a reduction in depreciation expense, so we deduct it]

Net effect = $21,000 increase in expense - $12,000 decrease in expense

= $9,000 increase in expense.

_{Please rate positive and comment in case of any doubt. I
will be happy to help you further.}

ekkarill92 answered 10 months ago

Red Co. acquired 100% of Brown, Inc. on January 1, Year1. On that date, Brown had:...

Red Co. acquired 100% of Brown, Inc. on January 1, Year1. On that date, Brown had: Book value Fair Value expected life Land 42,000 52,000 forever Building 200,000 600,000 20 years Equipment 350,000 250,000 10 years What will be the net effect on consolidated expenses for the year ended December 31, Year 1 related to the acquisition allocations of Brown? a. An increase in total expenses of $10,000 b. A reduction in total expenses of $10,000 c. An increase in...

On January 1, 2020, Coronado Inc. had cash and common stock of $60,530. At that date,...

On January 1, 2020, Coronado Inc. had cash and common stock of $60,530. At that date, the company had no other asset, liability, or equity balances. On January 2, 2020, it purchased for cash $20,760 of debt securities that it classified as available-for-sale. It received interest of $4,100 during the year on these securities. In addition, it has an unrealized holding gain on these securities of $5,190 net of tax. Determine the following amounts for 2020: (a) net income, (b)...

Black Co. Blue Co. &

Black Co. Blue Co. 2017 2016 2017 2016 Net Income $65,000 $60,000 $25,000 $28,000 Income tax expense 18,200 17,000 5,000 5,500 Net sales 2,500,000 2,300,000 650,000 680,000 Total assets 500,000 490,000 200,000 210,000 Current assets 99,000 130,000 120,000 110,000 Operating assets 470,000 450,000 190,000 190,000 Operating liabilities 175,000 150,000 50,000 56,000 Weighted average shares Outstanding 85,000 85,000 75,000 75,000 Current liabilities 75,000 100,000 75,000 74,000 Total liabilities 350,000 ...

a) On January 1, 2020, Blue Inc. sold computer equipment to Larkspur Co. The sales price...

a) On January 1, 2020, Blue Inc. sold computer equipment to Larkspur Co. The sales price of the equipment was $511,000 and its carrying amount is $396,000. Record any journal entries necessary for Blue from the sale of the computer equipment in 2020. b) Use the information from part a. Assume that, on the same day the sale occurred, Blue enters into an agreement to lease the equipment from Larkspur for 10 years with annual lease payments of $69,428.50 at...

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020....

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $459,500 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit. The following shows fair values for the...

Ingenuous Company acquired a building on January 1, 2020 for P9,000,000. At that date, the building...

Ingenuous Company acquired a building on January 1, 2020 for P9,000,000. At that date, the building had a useful life of 30 years. On December 31, 2020, the fair value of the building was P9,600,000 and on December 31, 2021, the fair value is P9,800,000. The building was classified as an investment property and accounted for under the cost model. What amounts should be carried in the statement of financial position and recognized in profit or loss for 2021?

Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2020. As...

Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2020. As of that date, Jackson had the following trial balance: Debit Credit Accounts payable $ 60,000 Accounts receivable $ 50,000 Additional paid-in capital 60,000 Buildings (net) (20-year life) 140,000 Cash and short-term investments 70,000 Common stock 300,000 Equipment (net) (8-year life) 240,000 Intangible assets (indefinite life) 110,000 Land 90,000 Long-term liabilities (mature 12/31/22) 180,000 Retained earnings, 1/1/20 120,000 Supplies 20,000 Totals $ 720,000 $ 720,000...

1) On January 1, Year 1, Shaq Co. acquired 100% of the outstanding common stock of...

1) On January 1, Year 1, Shaq Co. acquired 100% of the outstanding common stock of O’Neal Co. As part of the total consideration transferred, Shaq promised to the shareholders of O’Neal to issue on May 1, Year 2, additional 1,000 shares of common stock if the total consolidated net income for Year 1 is greater than $1Billion. The consolidated net income in Year 1 was $1.2 Billion. The controller of Shaq Co. took the ACCY 410 class at the...

Suppose that on that same date (January 1, 2020) Demon Deacon Co. enters into another lease...

Suppose that on that same date (January 1, 2020) Demon Deacon Co. enters into another lease contract. The lease arrangement is for 8 years, has a bargain purchase option for $15,000, but no residual value guarantee. The expected useful life of the asset is 10 years. The initial value of the capital lease asset (and liability) is $615,000. Lease payments are end-of-year payments of $93,583. Record the journal entries for this lease arrangement that would be made on December 31,...

1. Selected financial information for Black Co. and for Blue Co. for 2017 and 2016 follow:...

1. Selected financial information for Black Co. and for Blue Co. for 2017 and 2016 follow: Black Co. Blue Co. 2017 2016 2017 2016 Net Income $65,000 $60,000 $25,000 $28,000 Income tax expense 18,200 17,000 5,000 5,500 Net sales 2,500,000 2,300,000 650,000 680,000 Total assets 500,000 490,000 200,000 210,000 Current assets 99,000 130,000 120,000 110,000 Operating assets 470,000 450,000 190,000 190,000 Operating liabilities 175,000 150,000 50,000 56,000 Weighted average shares Outstanding 85,000 85,000 75,000 75,000 Current liabilities 75,000 100,000 100,000...

Question