1 answer

(At December 31) 2019 2018 2017 Current assets Tangible fixed assets Intangible assets. Total assets.... $285,000...

Question:

(At December 31) 2019 2018 2017 Current assets Tangible fixed assets Intangible assets. Total assets.... $285,000 662,500 40,
a. C. 22. Review of pre-consolidation equity method (controlling investment in affiliate, fair value differs from book value)
(At December 31) 2019 2018 2017 Current assets Tangible fixed assets Intangible assets. Total assets.... $285,000 662,500 40,000 $987,500 $277,500 575,000 45,000 $897,500 $207,000 563,000 50,000 $820,000 Current liabilities.. Noncurrent liabilities. Common stock. Additional paid-in capital. Retained earnings Stockholders' equity Total liabilities and equity $120,000 266,250 100,000 100,000 400,000 600,000 $986,250 $110,000 242,500 100,000 100,000 345,000 545,000 $897,500 $100,000 220,000 100,000 100,000 300,000 500,000 $820,000 2019 2018 2017 (For the years ended December 31) Revenues Expenses .. Net income $970,000 875,000 $ 95,000 $920,000 840,000 $ 80,000 $850,000 775,000 $ 75,000 Dividends ... $ 40,000 $ 35,000 $ 25,000
a. C. 22. Review of pre-consolidation equity method (controlling investment in affiliate, fair value differs from book value) Assume on January 1, 2017, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $112,500 higher than the investee's recorded book value. The tangible fixed assets had a remaining useful life of 6 years. In addition, the acquisition resulted in goodwill in the amount of $218,750 recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "investment in investee" account in the investor company's pre-consolidation balance sheet on December 31, 2019? $600,000 b. $875,000 $781,250 d. $986,250 23. Review of pre-consolidation equity method (controlling investment in affiliate, fair value differs from book value) Assume on January 1, 2017, an investor company purchased 100% of the outstanding voting com- mon stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $112,500 higher than the investee's recorded book value. The tangible fixed assets had a remaining useful life of 6 years. In addition, the acquisition resulted in goodwill in the amount of $218,750 recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's pre-consolidation income statement for the year ended December 31, 2019? $95,000 b. $36,250 $76,250 d. $55,000 a. c.

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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