Net Income Dividends Declared 2017 2018 $150,000 $1,800,000 1,985,000 Carrying Amount Falr Value Cash and receivables Computing equipment Patented technology Trademark Liabilities 5,000,000 100,000 5,700,000 4,000,000 (185,000) 2,000,000 (185,000)
15P
On January 1, 2017, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $2,700,000 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:
Also as of January 1, 2017, Sauk Trail’s computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a three-year remaining useful life. The trademark’s useful life was considered indefinite. Ridge Road attributed to
During the next two years, Sauk Trail reported the following net income and dividends:
a. How much of Ridge Road’s $2,700,000 payment for Sauk Trail is attributable to goodwill?
b. What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2017 and 2018?
c. What amount should Ridge Road report for its investment in Sauk Trail on its
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