Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31,20X9.On the date of acquisition,Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000.Using the entity theory,at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?
A) $650,000
B) $500,000
C) $550,000
D) $375,000

Question

Quizplus · Accepted Answer

Under the entity theory, the land is reported at its fair value. Therefore, the consolidated balance sheet would report the land at the combined fair value of both companies: $300,000 (Princeton's land) + $500,000 (Sheffield's land) = $800,000. However, since the question asks for the amount immediately after the combination and only 75% of Sheffield is acquired, the correct amount is $300,000 + (75% of $500,000) = $650,000.

Princeton Company Acquired 75 Percent of the Common Stock of Sheffield