Question

Over a 4 year period the black corp purchased 100% of the outstanding voting shares of White Co. The acquisition was made in a series of steps as follows:

DATE:                             %                        Purchase Price

Jan 1, Year 1 5% 5,000

Jan 1, Year 2 10% 12,000

Jan 1, Year 3 10% 15,000

Jan 1, Year 4 75% 200,000

Total 100% 232,000

Any excess of the purchase price over the net book value of the assets was attributed to goodwill.

The acquisition in Year 3 allowed Black to have significant influence over the operating policies of white.

The acquisition in Year 4 gave Black control over White.

Operating results, dividends paid and fair value of white for the 4 years were as follows:

Net Income Dividend Paid Fair Value

Jan 1 Year 1 100,000

Year 1 25,000 15,000 120,000

Year 2 30,000 15,000 150,000

Year 3 40,000 20,000 170,000

Year 4 50,000 25,000 250,000

1. For each of the 4 years compute the amount of income that will be recorded on Black’s books related to its investment in White Co. AND compute the balance in “Investment in White Co. Account” on Blacks books at December, 31 of each year

*SHOW ALL WORK*

Answer 1

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