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.
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Lucky's
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Waterview
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Cash
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$300,000
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$260,000
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Accounts receivable
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250,000
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135,000
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Inventory
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254,000
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275,000
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Property, plant, and equipment
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2,300,000
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356,500
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$3,104,000
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$1,026,500
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Accounts payable
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$45,000
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$37,500
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Salaries and taxes payable
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450,000
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46,000
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Notes payable
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500,000
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450,000
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Common stock
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250,000
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60,000
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Additional paid-in capital
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950,000
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106,500
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Retained earnings
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909,000
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326,500
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$3,104,000
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$1,026,500
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Compute consolidated common stock.
A. $310,000
B. $350,000
C. $290,000
D. $250,000
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