Question

In: Accounting

On January 1, 2014, JVE Corp. paid $1,000,000 cash to acquire 35% of the common shares...

On January 1, 2014, JVE Corp. paid $1,000,000 cash to acquire 35% of the common shares of PG Corp. At the time of acquisition, the carrying amount of PG’s common shares was $900,000, and its retained earnings were $1,500,000. The fair values of the identifiable net assets (INA) approximated their carrying values except for the following: • The fair value of machinery was estimated to be $400,000; the net book value was $450,000. Other information follows: • The remaining useful life of machinery at the date of acquisition was five years, and the estimated residual value was $0. Both companies depreciate their equipment on a straight-line basis. • PG’s net income for the years ended December 31, 2014, and December 31, 2015, was $125,000 and $135,000, respectively. • On September 1, 2014, PG declared and paid $75,000 of dividends on its common shares; no other dividends have been declared since. • The investment in the associate was not impaired. • On January 1, 2016, JVE reduced its ownership stake in PG to 25%. Cash proceeds realized from the sale of the shares was $330,000. What is the amount of gain to be reported on the partial disposal of PG’s common shares on January 1, 20X6? a) $16,286 b) $23,786 c) $24,786 d) $37,714

Solutions

Expert Solution

Amount in $
Investment on January 1,2014        1,000,000
Less: Dividend 2014              26,250 (75,000*0.35)
Add: Investment revenue 2014              43,750 (125,000*0.35)
Add: Machinery amortization of less fair value-2014                3,500 ((50,000/5)*0.35)
Add: Investment revenue 2015              47,250 (135,000*0.35)
Add: Machinery amortization of less fair value -2015                3,500 ((50,000/5)*0.35)
Investment on January 1,2016        1,071,750
Amount in $
Sales Proceeds of 10% stake           330,000
Less: Proportionate Cost of 10%           306,214 ( 1,071,750 x 10/25)
Gain on disposal              23,786
Correct answer is option b ( i.e. $ 23,786 ).

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

On January 1, 2014, Kane Corp. issued shares of its common stock to acquire all of...
On January 1, 2014, Kane Corp. issued shares of its common stock to acquire all of the outstanding common stock of Dean Inc. Dean's book value was only $140,000 at the time, but Kane issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. The buildings (ten-year life) were undervalued on Dean's records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transferred over fair value of identified...
   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, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of...
On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of Loki Inc., a publicly traded firm. This acquisition provided Thor with significant influence. Thor paid $700,000 cash for the investment. At the time of the acquisition, Loki reported assets of $2,500,000 and liabilities of $1,200,000. Asset values reflected fair market value, except for capital assets that had a net book value of $500,000 and a fair market value of $730,000. These assets had a...
Q1.1) On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares...
Q1.1) On January 1, 2014, Thor Corp. bought 30,000 shares of the available 100,000 common shares of Loki Inc., a publicly traded firm. This acquisition provided Thor with significant influence. Thor paid $700,000 cash for the investment. At the time of the acquisition, Loki reported assets of $2,500,000 and liabilities of $1,200,000. Asset values reflected fair market value, except for capital assets that had a net book value of $500,000 and a fair market value of $730,000. These assets had...
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...
PROBLEM 2 On January 1, 2016, Biden Corp. issued shares of its common stock to acquire...
PROBLEM 2 On January 1, 2016, Biden Corp. issued shares of its common stock to acquire all of the outstanding common stock of Raffie Inc. Raffie’s book value was only $140,000 at the time, but Biden issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. Biden was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on Raffie's records by $60,000 while equipment (five-year life)...
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of...
Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 31,480,000 rupees. The aircraft has an estimated useful life of 50 years and no salvage value. The company has determined that the aircraft is composed of three significant components with the following original costs (in rupees) and estimated useful lives: Component Cost Useful Life Fuselage 10,100,000 50 years Engines 16,100,000 40 years Interior 5,280,000 30 years 31,480,000 The U.S. parent of Surat does not...
Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of...
Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 33,050,000 rupees. The aircraft has an estimated useful life of 40 years and no salvage value. The company has determined that the aircraft is composed of three significant components with the following original costs (in rupees) and estimated useful lives: Component Cost Useful Life Fuselage 11,800,000 40 years Engines 16,200,000 30 years Interior 5,050,000 20 years 33,050,000 The U.S. parent of Surat does not...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT