Question

On January 1, 20X1, Como Company purchased 45% of the outstanding common shares of the Lite Company for $200,000. The net assets of Lite Company totaled $400,000. The inventory had a book value of $100,000 and a fair value of $120,000. Excess cost attributable to inventory is written off in 20X1. During 20X1, Lite Company earned $200,000 and declared a dividend of $40,000 for the year. The amount of the excess cost over book value attributable to inventory written off in 20X1 is: Multiple Choice $3,000. $7,500. $9,000. $4,500.

Answer 1

Answer:

C. $9,000

Explanation:

Cost of Inventory to Como company = $120,000 * 45%

Cost of Inventory to Como company = $54,000

Book value of Inventory attributable to Como company = $100,000 * 45%

Book value of Inventory attributable to Como company = $45,000

Excess of cost over book value which is written off in 20X1 is:

= Cost - Book value

= $54,000 - $45,000

= $9,000