Question

In: Accounting

On January 1, 20X6, Plus Corporation acquired 90 percent of Side Corporation for $180,000 cash. Side...

On January 1, 20X6, Plus Corporation acquired 90 percent of Side Corporation for $180,000 cash. Side reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Side reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Side at the date of acquisition had a remaining economic life of five years. Plus uses the equity method in accounting for its investment in Side.

29) Based on the preceding information, the increase in the fair value of patents held by Side is:

A) $20,000

B) $25,000

C) $15,000

D) $5,000

30) Based on the preceding information, what balance would Plus report as its investment in Side at January 1, 20X8?

A) $230,400

B) $180,000

C) $234,000

D) $203,400

31) Based on the preceding information, what balance would Plus report as its investment in Side at January 1, 20X9?

A) $251,100

B) $224,100

C) $215,100

D) $234,000

Please answer my questions using clear math steps

Solutions

Expert Solution

29

Ref Particulars Amount
a Fair value of entity        2,00,000
b Total value without patent        1,75,000
c=a-b Patent            25,000
Fair value of consideration given:
Ref Particulars Amount
Stock
Cash           1,80,000
a Total consideration           1,80,000
b Stake acquired 90%
c=a/b Fair value of subsidiary           2,00,000
d=100%-b Minority interest 10%
e=c*d Fair value of minority interest              20,000
On acqusition date
Value of subsidiary without patent
Common stock           1,00,000
Paid in capital                       -  
Retained earnings              60,000
Fair value adjustment:
Patent                       -  
Equipment              10,000
Land                5,000
Fair value without patent           1,75,000

30

Particulars Investment
Acquisition date             1,80,000
Add: share of net income                54,000
Less: Dividends                18,000
Less: Fair value amortisation                12,600
Balance Jan 1, 20X8             2,03,400

Share of earnings for 2 years = 30,000 * 2 * 90% = 54,000

Share of dividends for 2 years = 10,000 * 2 * 90% = 18,000

Fair value amortization for 2 years = 7,000 * 90% * 2 = 12,600

Account Fair value adjustment on acquisition Useful life Amortisation per year
Patent                               25,000 5 5000
Equipment                               10,000 5 2000
Land                                 5,000
Fair value amortisation for the year: 7000

31

Particulars Investment
Acquisition date             1,80,000
Add: share of net income                81,000
Less: Dividends                27,000
Less: Fair value amortisation                18,900
Closing balance             2,15,100

Similar calculation like 30, except multiplication factor is 3.


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