4. Tall Company buys all of the outstanding stock of Small Company on November 1, Year One for $500,000 and is now preparing consolidated financial statements at the end of Year One. Small earned revenues of $10,000 per month during Year One along with expenses of $8,000 per month. On November 1, Year One, Small had only one asset a piece of land with a cost of $300,000 and a fair value of $450,000 and no liabilities. The land continues to appreciate in value and is worth $470,000 at the end of Year One. Which of the following statements is true about the consolidated financial statements at the end of Year One?
A Consolidated net income will include $120,000 minus $96,000 earned by Small.
B Goodwill at the end of Year One is reported as 0 under the acquisition method.
C The gain on the land owned by Small is reported as a $30,000 gain.
D. None of the above statements are true.
For your review, I have attached a formatted MS Word file containing information and instructions for completion of the Consolidated Financial Statement exercise.
The attached MS Word file contains instructions for the determination of actual revenue and expenses, as well as the value of subsidiary assets and liabilities resulting from the consolidation of the Tall and Small companies.