ABC Company owns 100% of XYZ Company's outstanding shares, which were 30,000 shares. On December 31, 2017, the investment account reflected a balance of $600,000. The investment account is maintained in the internal records of ABC using the equity method. Amortization on this acquisition amounted to $1,000 per year that related to a patent that was amortized over 10 years since January 15, 2015. On July 1, 2018, ABC Company sold 70% of the outstanding shares to another company for $500,000 cash. On that date, the shares were trading at $10 a share. After this event, ABC Company cannot control the operations of XYZ Company and thus has to use the equity method to account for its investments. In 2018, XYZ Company earned $150,000 and paid dividends of $40,000. Assume net income and dividends occur evenly during the year. Required: Prepare the required entry(ies) on July 1st, 2018.

ABC Company owns 100% of XYZ Company's outstanding shares, which were 30,000 shares. On December 31, 2017, the investment account reflected a balance of $600,000. The investment account is maintained in the internal records of ABC using the equity method. Amortization on this acquisition amounted to $1,000 per year that related to a patent that was amortized over 10 years since January 15, 2015. On July 1, 2018, ABC Company sold 70% of the outstanding shares to another company for $500,000 cash. On that date, the shares were trading at $10 a share. After this event, ABC Company cannot control the operations of XYZ Company and thus has to use the equity method to account for its investments. In 2018, XYZ Company earned $150,000 and paid dividends of $40,000. Assume net income and dividends occur evenly during the year. Required: Prepare the required entry(ies) on July 1st, 2018.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

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On 1 July 2019, Brad Ltd acquired all of the assets and liabilities of Pitt Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100 000 shares that at date of issue had a fair value of $5.20 per share. Costs of issuing these shares amounted to $1000. Legal costs associated with the acquisition of Pitt Ltd amounted to $1200. The asset and liabilities of Pitt Ltd at 1 July 2019 were as follows: Carrying amount Fair value Assets $ 2000 10000 64 000 320 000 $ 2000 10000 Cash Accounts receivable 68 000 232 000 Inventories Equipment Accumulated depreciation – equipment (96 000) 240 000 Patents 280 000 Liabilities (16 000) (64 000) Accounts payable (16000) (64 000) Debentures Required (a) Prepare the acquisition analysis at 1 July 2019 for the acquisition of Pitt Ltd by Brad Ltd.
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