Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2023, consolidated equipment.
A)$800,000.
B)$808,000.
C)$840,000.
D)$760,000.
E)$848,000.

Question

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted.  Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2023, consolidated equipment.
A)$800,000. 
B)$808,000. 
C)$840,000. 
D)$760,000. 
E)$848,000.

Quizplus · Accepted Answer

To find the consolidated equipment, we need to eliminate the effects of the undervaluation/overvaluation of Vega's buildings and equipment. The excess depreciation resulting from the overvaluation of buildings needs to be added back to Vega's book value of buildings, while the deficiency depreciation resulting from the undervaluation of equipment should be subtracted from Vega's book value of equipment.

Step 1: Calculate the excess depreciation resulting from the overvaluation of buildings: 
$30,000 / 20 years = $1,500 
$1,500 x 4 years = $6,000

Step 2: Calculate the deficiency depreciation resulting from the undervaluation of equipment: 
$80,000 / 10 years = $8,000 
$8,000 x 4 years = $32,000

Step 3: Determine Vega's adjusted book value of equipment: 
$350,000 + $50,000 trademark - $32,000 deficiency depreciation = $368,000

Step 4: Determine the consolidated equipment: 
Green Corporation's equipment + Vega's adjusted book value of equipment = Consolidated equipment 
$500,000 + $368,000 = $868,000

However, we need to account for the fact that Green issued 10,500 shares of its stock to acquire Vega on January 1, 2019, with a fair value of $95 per share. This means that the acquisition cost of Vega is: 
10,500 shares x $95 per share = $997,500

To find the elimination entry for the excess acquisition cost, we need to determine the excess of the acquisition cost over the book value of Vega: 
Acquisition cost of Vega - Book value of Vega 
$997,500 - ($420,000 + $350,000 + $50,000) = $177,500

To eliminate the excess acquisition cost, we need to reduce the consolidated equipment by the corresponding amount: 
Consolidated equipment - Excess acquisition cost 
$868,000 - $177,500 = $690,500

Therefore, the answer is C) $840,000.

Following Are Selected Accounts for Green Corporation and Vega Company