Figure:
on January 1, 20X1, the Moody Company Entered into a Transaction

question 51

Multiple Choice

Figure:
On January 1, 20X1, the Moody company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: $\begin{array}{lrr}&\text { Moody }&\text { Osorio }\\\text { Cash } & \$ 180 & \$ 40 \\\text { Receivables } & 810 & 180 \\\text { Inventories } & 1,080 & 280 \\\text { Land } & 600 & 360 \\\text { Buildings (net) } & 1,260 & 440 \\\text { Equipment (net) } & 480 & 100\\\text { Accounts payable } & (450) &(80) \\\text { Long-term liabilities } & (1,290) &(400) \\\text { Common stock }(\$ 1 \text { par }) &(330) \\\text { Common stock }(\$ 20 \text { par }) & & (240) \\\text { Additional paid-in capital } & (1,080) & (340) \\\text { Retained earnings } & (1,260) & (340) \end{array}$ Note: Parentheses indicate a credit balance.
In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.
-What amount was recorded as the investment in Osorio?

• A) $930.
• B) $820.
• C) $800.
• D) $835.
• E) $815.

---

Definitions:

Differential Analysis

The process of comparing the costs and benefits of alternative decisions, focusing on the differences between the options.

Fixed Costs

Expenses that do not change in the short term, regardless of the level of production or sales activities.

Differential Analysis

The process of analyzing and comparing alternative business decisions based on the differences in total costs and total revenues.

Commercial Oven

A heavy-duty cooking appliance designed for use in a commercial setting like restaurants or bakeries, built to withstand high-volume, continuous use.