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.

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Definitions:

Occupational Functioning

Refers to the capacity and performance level of an individual in their professional role or work environment.

Reality Testing

A psychological process in which an individual differentiates between the external world and internal thoughts and perceptions.

Cause-And-Effect

The relationship between events where one or more events cause another event to occur, explaining how and why things happen.

Positive Symptom

An excess or distortion of normal functions or behaviors, often used to describe a symptom in psychiatric disorders.