View the step-by-step solution to:

1) On December 31, Year One, Giant Company acquired 100 percent of the outstanding stock of Tiny Company.

1) On December 31, Year One, Giant Company acquired 100 percent of the outstanding stock of Tiny Company. On that date, Tiny was reporting inventory with a cost of $30,000 (but a fair value of $45,000) and sales for the year of $400,000. Upon acquisition, Giant produces consolidated financial statements to combine the two companies. Which of the following statements is correct about these consolidated statements?
Answer

A)Tiny’s inventory is included at $30,000 but none of its revenues are included.

B)Tiny’s inventory is included at $30,000 as well as its revenue of $400,000.

C)Tiny’s inventory is included at $45,000 but none of its revenues are included.

D)Tiny’s inventory is included at $45,000 as well as its revenue of $400,000.



2) On January 1, Year One, Big Company acquires 100 percent of the outstanding shares of Small Company by issuing its own stock worth $12 million. The shares of Small had been worth only $11 million in the period leading up to the acquisition but Big had to pay a premium in order to obtain all of the stock. Big paid an additional $200,000 in cash to attorneys as direct consolidation costs and another $150,000 in stock issuance costs. According to US GAAP, what should be the basis for reporting the assets and liabilities of Small within consolidated financial statements created on the date of acquisition?
Answer

$11,350,000

$12,000,000

$12,200,000

$12,350,000


3) On November 1, Year One, the Haynie Company signs a contract to receive one million Japanese yen on February 1, Year Two, for $10,000 based on the three-month forward exchange rate at that time of $1 for 100 Japanese yen (1,000,000 x 1/100 or $10,000). This contract is a derivative because its value is derived from the future value of the Japanese yen in relation to the US dollar. On December 31, Year One, the Haynie Company is producing financial statements. How is this forward exchange contract reported?

Answer

It is shown as an asset or a liability at its fair value.

It is shown only as an asset at its fair value.

It is shown only as a liability at its fair value.

It is only disclosed in the notes to the financial statements because it is a future transaction.
Sign up to view the entire interaction

Top Answer

1. B)Tiny’s inventory is included at $30,000 as well as its revenue... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online