Question

On January 1, 2021, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows:

Moody Osorio
Cash $180 $40
Receivables 810 180
Inventories 1,080 280
Land 600 360
Buildings (net) 1,260 440
Equipment (net) 480 100
Accounts payable (450) (80)
Long-term liabilities (1,290) (400)
Common stock ($1 par) (330)
Common stock ($20 par) (240)
Additional paid-in capital (1,080) (340)
Retained earnings (1,260) (340)
Note: Parentheses indicate a credit balance.
In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60. Compute the amount of consolidated inventories at date of acquisition.
A. $1,080.
B. $1,420.
C. $1,065.
D. $1,425.
E. $1,440.

Answer 1

$1,370

Step-by-step explanation:

IFRS 3 states that Acquirer is deemed to have taken over the Assets and Liabilities at their Acquisition Fair Value in Acquired records.

Therefore,

We need to first revalue the Inventory shown in Osorio records upwards by $10.

Then we combine 100% of Moody`s Inventory with 100% of Osorio fair valued Inventory.

Calculation of Consolidated Inventory Balance

Moody`s Inventory $1,080

Osorio fair valued Inventory (280 + 10) $290

Inventory Balance $1,370