Can someone please help me with the following question. I am not really sure even how to start.
One company purchased all of the common stock of another company on January 1, 2005, paying slightly more than the fair value of acquired company's net assets. At that time, the acquired company had buildings with a twenty-year useful life, a book value of $600,000, and a fair value of $696,000. On December 31, 2006, the acquired company had buildings with a book value of $570,000 and a fair value of $648,000. On that date, the acquirer company had buildings with a book value of $1,878,000 and a fair value of $2,160,000.
-What amount should be shown for buildings on the consolidated balance sheet dated December 31,2006?
To determine the amount that should be shown for buildings on the consolidated balance sheet dated December 31, 2006, we need to consider the accounting treatment of the buildings acquired by the purchasing company.
When one company acquires another, the assets and liabilities of the acquired company are usually recorded at their fair values at the acquisition date. Any excess amount paid over the fair value of the acquired company's net assets is recorded as goodwill.
In this case, the acquiring company purchased all of the common stock of the acquired company on January 1, 2005, paying slightly more than the fair value of the acquired company's net assets. The buildings of the acquired company had a book value of $600,000 and a fair value of $696,000 at the time of acquisition.
As of December 31, 2006, the acquired company's buildings had a book value of $570,000 and a fair value of $648,000. The acquiring company's buildings had a book value of $1,878,000 and a fair value of $2,160,000.
To determine the amount to be shown on the consolidated balance sheet, we need to sum up the fair values of the buildings from both the acquired and acquiring companies.
Fair Value of Buildings on December 31, 2006:
Acquired Company's Building: $648,000
Acquiring Company's Building: $2,160,000
Total Fair Value of Buildings: $648,000 + $2,160,000 = $2,808,000
Therefore, the amount to be shown for buildings on the consolidated balance sheet dated December 31, 2006, should be $2,808,000.