Question
Tall Company buys all the outstanding stock of Small Company on November 1, Year One for $500,000 and is now preparing consolidated financial statements at
Tall Company buys all the outstanding stock of Small Company on November 1, Year One for $500,000 and is now preparing consolidated financial statements at the end of Year One. Small earned revenues of $10,000 per month during Year One along with expenses of $8,000 per month. On November 1, Year One, Small had one asseta piece of land with a cost of $300,000 and a fair value of $450,000and no liabilities. The land continues to appreciate in value and is worth $470,000 at the end of Year One. Which of the following statements is true about the consolidated financial statements at the end of Year One and provide and explanation as to why?
- Consolidated net income will include $4,000 earned by Small.
- Goodwill at the end of Year One is reported as $30,000.
- The land owned by Small is reported at the end of Year One at $470,000.
- On consolidated financial statements, a $150,000 gain is reported on the land that was owned by Small.
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