## Answers

**Calculation**

Common stock | 100,000 | ||

Additional paid in capital | 100,000 | ||

Retained earnings at end of Year 2017 | 300,000 | ||

Less: increase in retained earnings (75000-25000) | 50,000 | ||

Retained earnings at beginning of Year 2017 | 250,000 | ||

Book value of investee company | 450,000 | ||

Add: Tangible assets, fair value higher than book value | 112,500 | ||

Add: Allocated to goodwill | 218,750 | ||

Costs of investment acquired = Investment value at beginning of Year 2017 | 781,250 |

**Answer 22**

Year 2017 | Year 2018 | Year 2019 | |

Investment value at beginning of Year | 781,250 | 812,500 | 838,750 |

Add: Net income of investee | 75,000 | 80,000 | 95,000 |

Less: Dividend received | (25,000) | (35,000) | (40,000) |

Less: Depreciation on undervalued tangible assets (112500/6) | (18,750) | (18,750) | (18,750) |

Investment value at end of Year | 812,500 | 838,750 | 875,000 |

Investment value at end of Year 2019 (Correct Option = B) | 875,000 |

**Answer 23**

Year 2019 | |||

Net income of investee | 95,000 | ||

Less: Depreciation on undervalued tangible assets (112500/6) | (18,750) | ||

Income from investee company for the year ended 2019 (Correct Option = C) | 76,250 |

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