Anyone please check the following question to illustrate the difference between this two methods?

On 12/31/x1 Passey Co. acquired a 100% interested in Solo Co by exchanging 10,000 shares of its common stock for 100,000 shares of Solomon's common stock. The fair market value of Passey's common stock on Dec 31, 2001 was $9 per share, and the fair value of Solomon's was $3.5 per share.

Additional in formation as of Dec 31, 20x1 is as follows:

For Solo Co:

Current assets : $115,000 (BV) --- $115,000 (FV)

Plant assets:     $200,000 (BV) --- $255,000 (FV)

Liabilities:           $10,000 (BV) ---- $10,000 (FV)

For Passey Co

Plant assets      $1,700,000 (BV) --- $1,800,000 (FV)

Passey Co's consolidated financial statements as of Dec 31, 20x1 would report ?

If purchase method used, the answer is extraordinary gain of $15,000.

If acquisition method used, is it gain on bargain purchase of $15,000 shown up on income from continuing operation??????

Thanks!!

Anyone know? Please help...

Exam is next week, feel so unready.. How to prepare the simulations? With limited time, should I focus on MCQs or the simulation? please advise.. 

cpacracker1974.

The purchase method is no longer used.  The acquisition method is used now and records goodwill for acquisition cost>fv net identifiable assets and

bargain gain acquisition cost< net identifiable assets.

Also, the wording has changed to acquirer, acquiree.

My exam is next week also.. 11/24.  Keep going over MCQ back and forth through all modules as randomly as you can.

Hi Joecjr,

    Thanks a lot for the reply. I know that the purchase method is not longer used. I am just trying to understand how acquisition method works by comparing their difference.

    What the bargain gain acquisition cost would be for the above question using acquisition method?

     Thanks for the advice and good luck for your exam. My exam is on Dec 27.