Test: CPA Financial Accounting and Reporting (FAR)

1.

Giant Company buys all outstanding shares of Little Company on October 1, Year 1 for $450,000. In Year 1, Little earned revenue of $15,000 per month and incurred expenses of $12,000 per month. On the date of the sale, Little had only one asset, a piece of land, with a book value of $350,000 and a fair value of $400,000. It had no liabilities. By the end of Year 1, the land had appreciated in value and was worth $410,000. Which of the following statements is true regarding the consolidated financial statements at the end of Year 1?

The land owned by Little will be reported in the Year 1 balance sheet at $410,000

A gain of $160,000 will be reported in Year 1 on the land owned by Little

Consolidated net income will include $9,000 earned by Little

Goodwill at the end of Year 1 is reported as $45,000

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