DC Company Purchased 100% of the Outstanding Common Shares of FA

question 1

Multiple Choice

DC Company purchased 100% of the outstanding common shares of FA Company on December 31,20X3 for $170,000.At that date,FA had $100,000 of outstanding common stock and retained earnings of $30,000.It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000.The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value.Inventory turns over four times a year.What adjustment should be made to the consolidated financial statements for the year ended December 31,20X4 for the difference in inventory valuation?

• A)Inventory at December 31,20X4 will be decreased by $10,000.
• B)Cost of goods sold for 20X4 will be increased by $10,000.
• C)Cost of goods sold for 20X4 will be decreased by $10,000.
• D)Retained earnings at the end of 20X4 will be decreased by $10,000.

---

Definitions:

NASD

Was a self-regulatory organization for the U.S. securities industry, responsible for regulatory oversight, which is now part of FINRA (Financial Industry Regulatory Authority).

NASDAQ

The National Association of Securities Dealers Automated Quotations, an American stock exchange known for its high concentration of technology companies.

FDIC

The Federal Deposit Insurance Corporation, a United States government agency that provides deposit insurance to depositors in US banks.

Financial System

The set of processes and mechanisms that enable the transfer of money between savers, borrowers, and investors.