Question

A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as:

Answer 1

Plant and Equipment

Step-by-step explanation:

During a consolidation, the excess of fair market value over book value must be recognized using the same account as the asset, for example, an excess in fair market value of merchandise, should increase the value of merchandise inventory.

In this case, an excess in the fair market value of equipment should increase the value of the plant and equipment account.

Answer 2

The correct answer is: Inventory.

Step-by-step explanation:

The difference between (fair) market value and book value of inventories would be recognized by adjusting inventories to fair value on the consolidated balance sheet.