Business, 12.02.2020 02:47, delaneymaufroy29
On January 1, 2014, Pinnacle Corporation exchanged $3,200,000 cash for 100% of the outstanding voting stock of Strata Corporation. On the acquisition date, Strate ahd the following balance sheet:
Cash
122,000
AR
283,000
Inventory
350,000
Buildings (net)
1,875,000
Licensing agreements
3,000,000
AP
375,000
Long-term debt
2,655,000
Common stock
1,500,000
Retained earnings
1,100,000
Pinnacle prepared the following fair-value allocation:
Fair value of Strata (consideration)
3,200,000
Carrying amount required
2,600,000
Excess fair value
600,000
to buildings (undervalued)
300,000
to licensing agreements (overvalued)
(100,000)
200,000
to goodwill (indefinite life)
400,000
At the acquisition date, Strata’s buildings had a 10-year remaining life and its licensing agreements were due to expire in 5 years. At December 31, 2015, Strat’s accounts payable included an $85,000 curent liability owed to Pinnacle. Strata Corporation continues its separate legal existence as a wholly owned subsidiary of Pinnacle with independent accounting records. Pinnalce mploys the initial value method in its intneral accounting for its investment in Strata. The separate financial statements for the two companies for the year ending December 31, 2015, follow. Credit balances are indicated by parentheses.
Answers: 1
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On January 1, 2014, Pinnacle Corporation exchanged $3,200,000 cash for 100% of the outstanding votin...
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