IOU Inc Purchased All of the Outstanding Common Shares of UNI

question 11

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IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory, and Land with a Book value of $120,000. UNI also had $1,400,000 in Liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value. Assuming that the purchase of the common shares of UNI Inc. was properly recorded at cost, which of the following journal entries is required to prepare Consolidated Financial Statements the day following the acquisition?
A) $\begin{array}{|l|r|r|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in UNI } & \$ 800,000 & \\\hline \text { Cash } & & \$ 800,000 \\\hline\end{array}$
B) $\begin{array}{|l|r|r|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Inventory } & \$ 2,000,000 \\\hline \text { Land } & \$ 170,000 \\\hline \text { Goodwill } & \$ 30,000 & \\\hline \text { Liabilities } & & \$ 1,400,000 \\\hline \text { Investments in UNI } & & \$ 800,000\\\hline\end{array}$
C) $\begin{array}{|l|r|r|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Net Assets } & \$ 800,000 & \\\hline \text { Cash } & & \$ 800,000 \\\hline\end{array}$
D) No entry.

• A) \(\begin{array}{|l|r|r|}
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Investment in UNI } & \$ 800,000 & \\
• \hline \text { Cash } & & \$ 800,000 \\
• \hline
• \end{array}\)
• B) \(\begin{array}{|l|r|r|}
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Inventory } & \$ 2,000,000 \\
• \hline \text { Land } & \$ 170,000 \\
• \hline \text { Goodwill } & \$ 30,000 & \\\hline \text { Liabilities } & & \$ 1,400,000 \\
• \hline \text { Investments in UNI } & & \$ 800,000\\
• \hline
• \end{array}\)
• C) \(\begin{array}{|l|r|r|}
• \hline & \text { Debit } & \text { Credit } \\
• \hline \text { Net Assets } & \$ 800,000 & \\
• \hline \text { Cash } & & \$ 800,000 \\
• \hline
• \end{array}\)
• D) No entry.

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