REFERENCE: Ref.03_12 Watkins,Inc.acquires All of the Outstanding Stock of Glen Corporation on Corporation

question 110

Multiple Choice

REFERENCE: Ref.03_12
Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities:
-If Watkins pays $450,000 in cash for Glen,what allocation should be assigned to the subsidiary's Equipment in preparing for consolidation at December 31,2011,assuming the book value at that date is still $80,000?

• A)$(5,000).
• B)$80,000.
• C)$75,000.
• D)$73,500.
• E)$(3,500).

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Definitions:

Variable Costing Income (VCI)

An accounting method that includes only variable costs—costs that change with production level—in calculating net income.

Full Costing Income (FCI)

A method of accounting that allocates all fixed and variable costs to products, operations or projects to determine profitability.

Consolidated Accounts

Financial statements that represent the combined financial activities of a parent company and its subsidiaries.

Absorption Costing

A costing approach that encompasses all costs associated with production, namely direct materials, direct labor, and both variable and fixed overheads, in the product's final cost.