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

question 18

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 shares 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 residual 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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Definitions:

StdDev

Another term for standard deviation, indicating how much individual data points deviate from the mean.

Median

The central number that splits a dataset into two equal parts, distinguishing the upper half from the lower half.

Ogive

A graphical representation of the cumulative frequency or cumulative relative frequency on a graph, often used in statistics.

IQR

The interquartile range (IQR) is a measure of statistical dispersion, representing the difference between the 75th (upper quartile) and 25th (lower quartile) percentiles of a data set.