Topic: Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a manufacturing division of the Algo Company. After negotiation of the agreement, but just before closing and actual transfer of the property, a noncontrolling stockholder of Algo notifed Bevo that a prior stockholders agreement with Algo empowered him to prevent the sale. The non-controlling stockholders claim was acknowledged by Bevos board of directors. Bevos board then organized Casco, Inc., to acquire the minority stockholders in-terest in Algo for $75,000, and Bevo advanced the cash to Casco. Bevo exercised control over Casco as a subsidiary corporation with common offcers and directors. Casco paid the noncontrolling stockholder $75,000 (about twice the market value of the Algo stock) for his interest in Algo. Bevo then purchased the manufacturing division from Algo.

Required:

a. What expenditures are usually included in the cost of property, plant, and equipment acquired in a purchase and why?

b. i. What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.?

ii. Should the fnancial statements of Bevo and Casco be consolidated? Discuss.

c. Assume that unconsolidated fnancial statements are prepared. Discuss the propriety of treating the $75,000 expenditure in the fnancial statements of the Bevo as

i. An account receivable from Casco

ii. An investment in Casco

iii. Part of the cost of the property, plant, and equipment

iv. A loss