Reference no: EM133190019

Question 1 - On January 1, Sons purchased 10% of Heller's common stock. On September 1, it purchased another 30% of Heller's common stock. During November, Heller declared and paid a cash dividend on its common stock.

How much income from Heller should Sons report on its income statement?

A. 10% of Heller's income for January 1 to August 31, plus 40% of Heller's income for the remainder of the year

B. 40% of Heller's income from September 1 to December 31 only

C. 30% of Heller's income

D. The amount of dividends received from Heller

Question 2 - Lucky's acquires Waterview, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Waterview's balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met.

The pre-acquisition balance sheets for the two companies at acquisition date are presented below.

	Lucky's	Waterview
Cash	$300,000	$260,000
Accounts receivable	250,000	135,000
Inventory	254,000	275,000
Property, plant, and equipment	2,300,000	356,500
	$3,104,000	$1,026,500
Accounts payable	$45,000	$37,500
Salaries and taxes payable	450,000	46,000
Notes payable	500,000	450,000
Common stock	250,000	60,000
Additional paid-in capital	950,000	106,500
Retained earnings	909,000	326,500
	$3,104,000	$1,026,500

Compute consolidated common stock.

A. $310,000

B. $350,000

C. $290,000

D. $250,000