Answered: Falr Value Tax Basis Accounts…

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

King’s Road recently acquired all of Oxford Corporation’s stock and is now consolidating the financial data of this new subsidiary. King’s Road paid a total of $850,000 for Oxford, which has the following accounts:
a. What amount of deferred tax liability arises in the acquisition?
b. What amounts will be used to consolidate Oxford with King’s Road at the date of acquisition?
c. On a consolidated balance sheet prepared immediately after this takeover, how much goodwill should King’s Road recognize? Assume a 40 percent effective tax rate.

Falr Value
Tax Basis
Accounts receivable
Inventory.
$153,000
$153,000
136,000
Land...
Buildings
136,000
276,000
221,000
160,000
Liabilities
Equipment.
(281,000)
(281,000)

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