Question

On January 1, 2017, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc. for $4,600,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2017, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow:

	Carrying Amount			Fair Value
Cash and receivables	$	205,000		$	205,000
Computing equipment		5,855,000			7,220,000
Patented technology		195,000			4,190,000
Trademark		245,000			2,190,000
Liabilities		(280,000	)		(280,000	)

Also as of January 1, 2017, Sauk Trail’s computing equipment had a remaining estimated useful life of seven years. The patented technology was estimated to have a 3-year remaining useful life. The trademark’s useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends:

	Net Income			Dividends Declared
2017	$	1,990,000		$	245,000
2018		2,175,000			255,000

The fair value of the Sauk Trail stock was $4,607,000 on December 31, 2017 and $4,605,500 on December 31, 2018. 1. How much of Ridge Road’s $4,600,000 payment for Sauk Trail on January 1, 2017 is attributable to revaluation increments and decrements and goodwill or gain on bargain purchase? 2. What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2017 and 2018? 3. Prepare all of the journal entries necessary for Ridge Road Company regarding their investment in Sauk Trail, Inc. for 2017 and 2018? including : a.Record the acquisition of Sauk Trail stock on 1/1/17 b.Record Ridge Roads share of the Income from Sauk Trail Inc for year 2017 c.Record the Dividends received from Sauk Trail for 2017 d.Record amortization of any revaluation increments for 2017 e.Record amortization of any revaluation decremdnets for 2017 f.Record change in fair value of investment in Sauk Trial stock on 12/31/17 g.Record any impairment of goodwill on 12/31/17 h.Record Ridge Roads share of income for Sauk trail for year 2018 i.Record the dividends received from sauk trail for 2018 j.Record amortization of any revaluation increments for 2018 k.Record amortization of any revaluation decrements for 2018 l.Record change in fair value of investment in Sauk trail on 12/31/18 m.Record any impairment of goodwill on 12/31/18 4. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2017 and 2018? 5. Assuming Alison uses the fair-value option to account for its investment in Sauk Trail, do the following: Prepare all of the journal entries necessary for Ridge Road Company regarding their investment in Sauk Trail, Inc. for 2017 and 2018?

a.Record the acquisition of Sauk Trail stock on 1/1/17 b.Record Ridge Roads share of the Income from Sauk Trail Inc for year 2017 c.Record the Dividends received from Sauk Trail for 2017 d.Record amortization of any revaluation increments for 2017 e.Record amortization of any revaluation decremdnets for 2017 f.Record change in fair value of investment in Sauk Trial stock on 12/31/17 g.Record any impairment of goodwill on 12/31/17 h.Record Ridge Roads share of income for Sauk trail for year 2018 i.Record the dividends received from sauk trail for 2018 j.Record amortization of any revaluation increments for 2018 k.Record amortization of any revaluation decrements for 2018 l.Record change in fair value of investment in Sauk trail on 12/31/18 m.Record any impairment of goodwill on 12/31/18 6. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at December 31, 2017 and December 31, 2018?

Answer 1

Acquisition Price