On January 1,20X9,Pallet Company acquires 80 percent ownership in Slat Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.Slat reports net assets with a book value of $250,000 and fair value of $250,000.Pallet Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in Slat.What will be the amount of consolidated net assets that would be reported immediately after the combination?
A)$680,000
B)$800,000
C)$900,000
D)$850,000

Question

Quizplus · Accepted Answer

To calculate the consolidated net assets immediately after the combination, we need to first adjust the book value of the investment in Slat to its fair value.

Fair value of Slat Corporation = $250,000 (given)
Book value of Slat Corporation = $250,000 (given)
Fair value of Pallet Company = $650,000 (given)
Book value of Pallet Company (excluding investment in Slat) = $600,000 (given)

Value of investment in Slat Corporation:

= 80% * (Fair value of Slat Corporation - Book value of Slat Corporation)

= 80% * ($250,000 - $250,000)

= $0

Since the fair value of the investment in Slat is equal to its book value, there is no goodwill or gain on bargain purchase.

Consolidated net assets = Book value of Pallet Company + Fair value of noncontrolling interest - Fair value of investment in Slat

= $600,000 + $50,000 - $0

= $650,000

Therefore, the correct answer is D) $850,000.

On January 1,20X9,Pallet Company Acquires 80 Percent Ownership in Slat