On January 1, 2013, the Moody Company Entered into a Transaction

question 7

Multiple Choice

On January 1, 2013, 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 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: $\begin{array}{lrr}&\text { Moody }& \text { Osorio }\\\text { Cash } & \$ 180 & \$ 40 \\\text { Receivables } & 810 & 180 \\\text { Inventories } & 1,080 & 280 \\\text { Land } & 600 & 360 \\\text { Buildings (net) } & 1,260 & 440 \\\text { Equipment (net) } & 480 & 100\\\text { Accounts payable } & (450) \\\text { Long-term liabilities } & (1,290) \\\text { Common stock }(\$ 1 \text { par }) &(330) \\\text { Common stock }(\$ 20 \text { par }) &&(240) \\\text { Additional paid-in capital } & (1,080) &(340) \\\text { Retained earnings } & (1,260) &(340) \end{array}$ 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.
What amount was recorded as goodwill arising from this acquisition?

• A)$230.
• B)$120.
• C)$520.
• D)None. There is a gain on bargain purchase of $230.
• E)None. There is a gain on bargain purchase of $265.

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Definitions:

Whole-language Approaches

Educational methods that focus on understanding and using language in its entirety rather than breaking it down into its components like phonics.

Phonetic-fluency Approaches

Phonetic-fluency approaches focus on the ease and speed with which phonetic elements of speech are processed and how this influences language learning and comprehension.

Eyewitness Memory

The recollection by individuals of events they have witnessed, important in the context of legal investigations, but subject to distortions and inaccuracies.

Confidence and Accuracy

The relationship between an individual's self-assurance in their abilities and the correctness of their outcomes.