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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