ABC Inc Has Acquired All of the Voting Shares of DEF

question 33

Essay

ABC Inc. has acquired all of the voting shares of DEF Inc and is gathering the necessary data to prepare consolidated financial statements. ABC paid $1,200,000 for its investment. Details of the companies' assets and liabilities on the acquisition date are shown below:
Required:
Assuming that DEF hasn't set up Deferred Tax Asset or Liability accounts, determine the amounts that would be used to prepare the Consolidated Balance Sheet on the acquisition date. Assume a tax rate of 50%.
$\begin{array}{|l|l|l|} \hline& \text { Fair Market Value } & \text { Tar Basis } \\\hline \text { Imentory } & \$ 80,000 & \$ 80,000 \\\hline \text { Accounts Receivable } & \$ 100,000 & \$- \\\hline \text { Land } & \$ 200,000 & \$ 200,000 \\\hline \text { Buildings } & \$ 300,000 & \$ 200,000 \\\hline \text { Equipment } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Pay able } & \$ 70,000 & \$ 70,000 \\\hline\end{array}$

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Definitions:

Slutsky Equation

A formula that decomposes the effect of a price change into a substitution effect and an income effect on the consumption of goods.

Extra Income Effect

The change in an individual's consumption choices resulting from a change in real income, due to factors other than a direct income increase.

Endowment

The total resources available to an individual or entity, which can include wealth, assets, or resources in an economic context.

Normal Good

A type of good for which demand increases as the income of individuals increases, holding everything else constant.