Question

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 20X9. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $500,000 and fair value of $500,000. At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

Answer 1

Answer:

Land in the consolidated balance sheet 650,000

Explanation:

In the consolidated balance sheet, the land of the controlled firm will be at fair value. But, the parent land will be kept at cost as there wasn't a transaction with a third party to validate the market value.  Because of this and according to the conservatism principles about assets valuation the aldn must be at cost.

Land:

Princeton 150,000  book value

Sheffiled  500,000 market value

Total        650,000