CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Richardson, Inc. purchased 80 percent of Frankfort Enterprises at market value. At the acquisition date, Richardson's equipment had a market value of $380,000 and a book value of $250,000, while Frankfort's equipment had a market value of $82,000 and a book value of $60,000. What is the equipment account purchase differential included on the acquisition date consolidated balance sheet under the acquisition method?

A. $22,000.
B. $17,600.
C. $130,000.
Correct Answer: A

User Contributed Comments 5

User Comment
NufaNka Frankfort's equipment market value 82k, book value 60k. 82k - 60k = 22k.
danlan2 In consolidated balance sheet, 80 percent is not used. I think 20 percent is reported as minority interest.
ssradja good point
vi2009 Good question! Refer to p37-38 (e.g. 10) very similar.
Note that IFRS & U.S.GAAP has different approaches to handling less than 100% acquisitions such as this case.
IFRS: 100% of fairvalue. So for this question, the given answer seem to refer to IFRS. Hence the entire 100% fairvalue - 100% book value to find the difference.

U.S.GAAP: 80% of fairvalue + 20% of the book value
davidt876 vi's out here saving lives
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