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

question 65

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.
Compute the amount of consolidated land at date of acquisition.

• A)$1,000.
• B)$960.
• C)$920.
• D)$400.
• E)$320.

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Definitions:

Unrecorded Revenue

Earnings from completed transactions or delivered goods/services that have not yet been documented in the financial accounts.

GAAP

Generally Accepted Accounting Principles, which are a common set of accounting rules and standards used in the United States for financial reporting.

Accrual Basis

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid, irrespective of when the transactions actually occurred.