On January 1, 2017, Boss Co. pays $96,000 to acquire 30% of the voting common stock...

On January 1, 2017, Boss Co. pays $96,000 to acquire 30% of the voting common stock of People Inc. Boss uses the equity method to account for its investment. At the time of the investment, People Inc. had net assets with a book value of $240,000 and with one undervalued net asset building which is undervalued in book by $30,000 (remaining useful life 15 years on 1/1/17). During 2017, People Inc. reported a net income of $100,000 and paid dividends of $60,000. Any excess cost over book value is attributable to goodwill with an indefinite life.

1) How much is the amount of goodwill from Boss’s investment in People Inc. (1/1/2017)?

2) What is the annual amortization of FV>BV (i.e., undervalued building)?

3) What is the balance in Boss’s investment account on December 31, 2017? Show your calculation (Show journal entries).

Solutions

Expert Solution

1.)		Amount $
	Purchase Consideration	96,000
	Less: Share of Net assets acquired	81,000
	{ ( 240,000 + 30,000 ) x 30% }
	Goodwill	15,000

2.)	Annual Amrotization of FV>BV	$ 2,000	=30000/15

3.)		Amount $
	Cost Of Investment	96,000
	Add: Share of net Income ( 100,000 x 30% )	30,000
	Less: Annual amortization ( 2,000 x 30% )	600
	Less: Dividend received ( 60,000 x 30% )	18,000
	Balance in Boss’s investment account on December 31, 2017	107,400

	Account Titles & Explanation	Debit $	Credit $
	Investment in People Inc.	96,000
	Cash		96,000
	( To record investment )

	Investment in People Inc.	30,000
	Investment Revenue		30,000
	( To record share of net income )

	Investment Revenue	600
	Investment in People Inc.		600
	( To record share of annual amortization )

	Cash	18,000
	Investment in People Inc.		18,000
	( To record dividend received )

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough...

On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough Company for $335,000. This investment enabled SPU to exercise significant influence over Brough. The book value of the acquired shares was $315,000 (the book value of Brough Co was $1,050,000). The excess of cost over book value was attributed to a building that was undervalued on Brough’s balance sheet and that had a remaining useful life of 10 years. For the year...

) Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2017....

) Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2017. As of that date, Jackson had the following trial balance: Debit Credit Accounts payable $ 60,000 Accounts receivable $ 50,000 Additional paid-in capital 60,000 Buildings (net) (20-year life) 140,000 Cash and short-term investments 70,000 Common stock 300,000 Equipment (net) (8-year life) 240,000 Intangible assets (indefinite life) 110,000 Land 90,000 Long-term liabilities (mature 12/31/19) 180,000 Retained earnings, 1/1/17 120,000 Supplies 20,000 Totals $ 720,000 $...

On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co.,...

On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co., paying $3,000,000. Barley properly accounts for this investment using the equity method. At the time of the investment, Wheat’s total stockholders’ equity was $5,000,000. Barley gathered the following information about Wheat’s assets and liabilities whose book values and fair values differed: Book Value Fair Value Buildings (20-year life) $ 1,000,000 $ 1,800,000 Equipment (5-year life) 1,500,000 2,000,000 Franchises (10-year life) 0 700,000 Any excess...

On January 1, 2017, Wayne Co. purchased 80,000 shares (40%) of the common stock of Grayson...

On January 1, 2017, Wayne Co. purchased 80,000 shares (40%) of the common stock of Grayson Corp., paying $1,000,000. At that time Grayson Corp. book value was $2,250,000. Grayson had a equipment undervalued by $100,000 and a useful life of 5 years. Any other excess fair value from this transaction was attributable to good will. During 2015, Grayson reported income of $400,000 and paid dividends of $160,000. At the close of business on 12/31/2017, Wayne Co. sold 10,000 shares (or...

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017,...

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Presents reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year. Santa reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year. On the consolidated financial statements for 2017, a)what amount should have been shown for Equity in...

Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017,...

Heidebrecht Design acquired 30% of the outstanding common stock of Quayle Company on January 1, 2017, by paying $610,500 for the 40,700 shares. Quayle declared and paid $0.40 per share cash dividends on March 15, June 15, September 15, and December 15, 2017. Quayle reported net income of $315,000 for the year. At December 31, 2017, the market price of Quayle common stock was $26 per share. Prepare the journal entries for Heidebrecht Design for 2017 assuming Heidebrecht Design cannot...

On January 1, 2020, ABC Co. paid $800,000 to acquire common shares of XYZ Co., which...

On January 1, 2020, ABC Co. paid $800,000 to acquire common shares of XYZ Co., which represented 30% of XYZ Co.’s shares outstanding. The value of XYZ’s net assets was $1,850,000 on that date. The excess of the purchase price over ABC’s share of XYZ’s net assets is attributed to unrecorded intangibles with a 20-year life. XYZ earned net income and comprehensive income of $400,000 in 2020 and paid dividends of $80,000. The investment in XYZ had a fair value...

Assume an investor acquired 100% of the voting common stock of an investee on January 1,...

Assume an investor acquired 100% of the voting common stock of an investee on January 1, 2012 in a transaction that qualifies as a business combination. As a result of the acquisition, the investor recognized no goodwill and no bargain purchase gain in the post-acquisition consolidated financial statements (i.e., all of the resulting Acquisition Accounting Premium relates to identifiable net assets). The investor uses the equity method to account for its pre-consolidation investment in the investee. In addition, there are...

On January 1, 2016, A Corp. issued shares of its common stock to acquire all of...

On January 1, 2016, A Corp. issued shares of its common stock to acquire all of the outstanding common stock of B Inc. B’s book value was only $140,000 at the time, but A issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. A was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on B's records by $60,000 while equipment (five-year life) was undervalued...

. On January 1, 2017, Leahy Corp. paid $600,000 to acquire Fischer Co. Leahy used the...

. On January 1, 2017, Leahy Corp. paid $600,000 to acquire Fischer Co. Leahy used the equity method to account for the investment. The following information is available for the assets, liabilities, and stockholders' equity accounts of Fischer: Book Value Fair Value Current Assets $ 95,000 $ 95,000 Land 87,500 118,500 Building (25-year life) 265,000 290,000 Equipment (10-year life) 207,500 186,500 Current liabilities 20,000 20,000 Long-term liabilities 70,000 70,000 Common Stock 136,500 Additional Paid-in Capital 250,000 Retained Earnings 178,500 ...

Subjects