Heavy Rocks Company acquires 100% of the stock of Simple Machinery Co. on January 1, 2XX0, for$7,200,000 cash. As of that date Simple Machinery had the following account balances:Book Value Fair Value$1,890,000 $1,890,0002,325,000 2,325,0001,050,000 1,200,0003,000,0002,700,000900,000 1,200,0001,800,000 2,700,000375,000 375,0006,000,0006,150,0001,500,000750,0002,340,000CashAccounts receivableInventoryBuilding-net (10 year life)Equipment-net (5 year life)LandAccounts PayableNotes Payable (due 12/31/2XX4)Common stockAdditional paid-in capitalRetained earningsIn 2XX0 and 2XX1, Simple Machinery had net income of $750,000 and $720,000, respectively. In addition,Simple Machinery paid dividends of $48,000 in both years. Inventory is assumed to be sold in 2XX0.Assume straight line amortization/ depreciation for assets and notes payable.What amount of inventory would be added to the parent's inventory balance to get consolidatedinventory at date of acquisition?

Heavy Rocks Company acquires 100% of the stock of Simple Machinery Co. on January 1, 2XX0, for $7,200,000 cash. As of that date Simple Machinery had the following account balances: Book Value Fair Value $1,890,000 $1,890,000 2,325,000 2,325,000 1,050,000 1,200,000 Cash Accounts receivable Inventory

Heavy Rocks Company acquires 100% of the stock of Simple Machinery Co. on January 1, 2XX0, for $7,200,000 cash. As of that date Simple Machinery had the following account balances: Book Value Fair Value $1,890,000 $1,890,000 2,325,000 2,325,000 1,050,000 1,200,000 Cash Accounts receivable Inventory

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Heavy Rocks Company acquires 100% of the stock of Simple Machinery Co. on January 1, 2XX0, for
$7,200,000 cash. As of that date Simple Machinery had the following account balances:
Book Value Fair Value
$1,890,000 $1,890,000
2,325,000 2,325,000
1,050,000 1,200,000
3,000,000
2,700,000
900,000 1,200,000
1,800,000 2,700,000
375,000 375,000
6,000,000
6,150,000
1,500,000
750,000
2,340,000
Cash
Accounts receivable
Inventory
Building-net (10 year life)
Equipment-net (5 year life)
Land
Accounts Payable
Notes Payable (due 12/31/2XX4)
Common stock
Additional paid-in capital
Retained earnings
In 2XX0 and 2XX1, Simple Machinery had net income of $750,000 and $720,000, respectively. In addition,
Simple Machinery paid dividends of $48,000 in both years. Inventory is assumed to be sold in 2XX0.
Assume straight line amortization/ depreciation for assets and notes payable.
What amount of inventory would be added to the parent's inventory balance to get consolidated
inventory at date of acquisition?

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