Reference no: EM132419234
Problem: Uprising Inc., acquires 70 percent of Red Company for $420,000. The remaining 30 percent of Red's outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Red has the following accounts:
Book Value Fair Value
Current assets $210,000 $210,000
Land $170,000 $180,000
Buildings $300,000 $330,000
Liabilities $(280,000) $(280,000)
The buildings have a 10-year remaining life. In addition, Red holds a patent worth $140,000 that has a five-year remaining life but is not recorded on its financial records. At the end of the year, the two companies report the following balances:
Uprising Red
Revenues $(900,000) $(600,000)
Expenses $600,000 $400,000
Required:
Question 1: Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year?
Question 2: Assume that the acquisition took place on April 1. Red's revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year?
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