Question

On January 1, 2018, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Moody Osorio Cash $ 180 $ 40 Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts payable (450 ) (80 ) Long-term liabilities (1,290 ) (400 ) Common stock ($1 par) (330 ) Common stock ($20 par) (240 ) Additional paid-in capital (1,080 ) (340 ) Retained earnings (1,260 ) (340 ) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60. Compute the amount of consolidated inventories at date of acquisition.

Answer 1

As per the given data,

Adjustments to be made:

Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.

So to make those assets correctly valued, we should increase Inventory by $10, Land by $40, and Buildings by $60.

In this problem, the question is the amount of consolidated inventories at the date of acquisition.

So, the value of consolidated inventories should be eauals to sum of the values of inventories of both the companies after considering the apprisal's adjustments.

i.e. The value of inventory = $ 1080 + ($ 280 + $ 10) = $ 1080 + $ 290 = $ 1,370.