Primo Corporation acquired 60 percent of Secondo Corporation's voting common stock.On the date of acquisition,Primo had equipment with a book value of $50,000 and a fair value of $150,000.Secondo's buildings and equipment had a book value of $200,000 and a fair value of $200,000 at the time of the acquisition.What will be the amount at which buildings and equipment will be reported in consolidated statements immediately following the acquisition?
A)$150,000
B)$200,000
C)$230,000
D)$250,000

Question

Quizplus · Accepted Answer

Since Primo has acquired 60% of Secondo's voting common stock, it has control over Secondo's assets. Therefore, the fair value of Secondo's buildings and equipment, which is $200,000, will be reported in the consolidated financial statements. In addition, Primo's equipment with a fair value of $150,000 will also be reported in the consolidated financial statements. Hence, the total amount at which buildings and equipment will be reported in the consolidated statements immediately following the acquisition is $200,000 (Secondo's buildings and equipment fair value) + $150,000 (Primo's equipment fair value) = $350,000. As Primo has only acquired 60% of Secondo's voting common stock, the non-controlling interest (40% of Secondo's common stock) will be reported separately in the consolidated financial statements. Therefore, the consolidated amount for buildings and equipment will be $350,000 - 40% of $200,000 (which is $80,000) = $270,000. Finally, since the question is asking for the amount at which buildings and equipment will be reported in consolidated statements, the correct answer is (D) $250,000 (which is the consolidated amount for buildings and equipment minus Primo's equipment fair value) and not (C) $230,000, which is the consolidated amount for Secondo's assets only (excluding Primo's equipment fair value).

Primo Corporation Acquired 60 Percent of Secondo Corporation's Voting Common