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Question - Abc Corporation paid $300,000 for 90% of the outstanding voting common stock of SIM Corporation on January 2, 2011 when the book value of SIM net assets was $200,000. The fair values of SALEM identifiable net assets were equal to their book values except as indicated below.
Book Value
Fair Value
Inventories (sold in 2011)
$120,000
$140,000
Buildings-net (10-year life)
250,000
300,000
Equipment (5-year life)
150,000
140,000
Account payable (in 2011)
40,000
20,000
SALEM reported net income of $60,000 during 2011; dividends of $40,000 were declared and paid during the year.
Required -
1. Prepare a schedule to allocate the fair value/book value differential to the specific identifiable assets and liabilities.
2. Determine ABC income from SIM for 2011.
3. Determine the correct balance in the Investment in SIM account as of December 31, 2011.
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