Assume that on January 1, 2013, an investor company acquired 100% of the outstanding voting common stock of an investee company in exchange for $75,000 worth of investor company common stock. The transaction is a tax-free reorganization under the Internal Revenue Code. The following financial statement information is for the investor company and the investee company on January 1, 2013, prepared immediately before this transaction. Book Values
Investor Investee
Receivables & inventories $50,000 $25,000
Land 100,000 50,000
Property & equipment 112,500 50,000
Total assets $262,500 $125,000
Liabilities $75,000 $40,000
Common stock ($2 par) 10,000 5,000
Additional paid-in capital 140,000 75,000
Retained earnings 37,500 5,000
Total liabilities & equity $262,500 $125,000
Compute the investment account (market value equals book value)
Assume that the fair values of the investee's net assets approximated the recorded book values of the investee's net assets, and the transaction resulted in no recorded goodwill or bargain purchase gain. What is the balance in the pre-consolidation "investment in investee" account on the investor company's books on January 1, 2013, immediately after the acquisition of the investee company voting common stock?
A. Not enough information provided
B. $5,000
C. $85,000
D. $75,000

C. $85,000

Explanation:

Calculation for the balance in the pre-consolidation

Receivables & inventories $25,000

Land 50,000

Property & equipment 50,000

Total assets 125,000

Less Liability ($40,000)

Consolidation balance$85,000

Therefore the amount of $85,000 will be the Consolidation balance

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: