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In which one of the following cases will a non-cash asset
transferred as consideration in a business combination be
measured at carrying value, not at fair value?
Question 3
On January 1, 200x Ritt Corp. purchased 80% of Shaw Corp.'s
$10 par common stock for $975,000. On this date, the carrying
amount of Shaw's net assets was $1,000,000. The fair values of
Shaw's identifiable assets and liabilities were the same as their
carrying amounts except for plant assets (net) which were
$100,000 in excess of the carrying amount. On that date, the fair
value of the 20% noncontrolling interest in Shaw was
appropriately determined to be $200,000. For the year ended
December 31, 200x, Shaw had net income of $190,000 and paid
cash dividends totaling $125,000. In the January 1, 200x
consolidated balance sheet, goodwill should be reported at
Question 4
On December 31, 1988, Saxe Corporation was merged into Poe
Corporation. In the business combination, Poe issued 200,000
shares of its $10 par common stock, with a market price of $18 a
share, for all of Saxe's common stock. The stockholders' equity
section of each company's balance sheet immediately before the
combination was: Assume that the merger is accounted for using
the acquisition method of accounting. December 31, 1988
additional paid-in capital should be reported at
Question 5
Scroll, Inc., a wholly owned subsidiary of Pirn, Inc., began
operations on January 1, 2005. The following information is from
the condensed 2005 income statements of Pirn and Scroll:
Additional information: