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

question 23

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 31,20X6 for the fair value increment related to the capital assets?

• A)The retained earnings at January 1,20X6 will be increased by $20,000.
• B)Amortization expense on the capital assets for 20X6 will be increased by $2,500.
• C)Amortization expense on the capital assets for 20X6 will be increased by $7,500.
• D)Retained earnings at the end of 20X6 will be increased by $12,500.

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Maslow's Hierarchy

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