Posted: August 30th, 2016
4. Tall Company buys all of the outstanding stock of Small Company on November 1, Year One for $500,000 and is now preparing consolidated financial statements at the end of Year One. Small earned revenues of $10,000 per month during Year One along with expenses of $8,000 per month. On November 1, Year One, Small had only one asset a piece of land with a cost of $300,000 and a fair value of $450,000 and no liabilities. The land continues to appreciate in value and is worth $470,000 at the end of Year One. Which of the following statements is true about the consolidated financial statements at the end of Year One?
A Consolidated net income will include $120,000 minus $96,000 earned by Small.
B Goodwill at the end of Year One is reported as 0 under the acquisition method.
C The gain on the land owned by Small is reported as a $30,000 gain.
D. None of the above statements are true.
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