CFA Practice Question

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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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