Compute the consolidated retained earnings at December 31, 2018

A)  $2,800.

B)  $2,825.

C)  $2,850.

D)  $3,425.

E)  $3,450.

Answer: B

Learning Objective: 02-06a

Learning Objective: 02-06b

Learning Objective: 02-07

Topic: Costs of combination

Topic: Acquisition―Calculate consolidated balances

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: FN Measurement

Feedback: $2,850 – $25 Broker Expense = $2,825

REFERENCE: 02-04

On January 1, 2018, 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:

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.