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. 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  Fischer earned net income for 2017 of $90,250 and paid dividends of $40,000 during the year.  1. What is the AAP amortization for 2017? ($207,500-$186,500)/10 – ($290000 -$265,000)/25 = $1100  2. For 2017, what is the balance in Equity Income on Leahy’s books?   3. What is the balance in Equity Investment at the end of 2017?   4. The 2017 consolidation entry to reverse Leahy’s recognition of Fischer's income would include a credit to Equity Investment for how much?   5. If Leahy had income from its own operations of $408,500 in 2017, what would be consolidated net income

Solutions

Expert Solution

1. AAP:

Account Book value Fair value Fair value adjustment
Buildings                           2,65,000           2,90,000               25,000
Equipment                           2,07,500           1,86,500             -21,000
Land                               87,500           1,18,500               31,000
Account Fair value adjustment on acquisition Useful life Amortisation per year Fair value adjustment balance
Buildings                               25,000 25 1000                    24,000
Equipment                             -21,000 10 -2100                   -18,900
Fair value amortisation for the year: -1100

2. Balance in equity income:

Equity in income of subsidiary Holding company
Net income                90,250
Less: Fair value amortisation                 -1,100
Net share of income                91,350

3.

Year Particulars Investment
2017 Acquisition date             6,00,000
2017 Add: share of net income                90,250
2017 Less: Dividends                40,000
2017 Less: Fair value amortisation                 -1,100
2017 Closing balance             6,51,350

4. 91350

5. consolidated net income= 91350+ 408500 = 499850

ekkarill92 answered 1 year ago
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