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cquired 30% of Beta's common shares on January 1, 20 500 shares to Beta's shareholders. The market value o e of Alpha's shares is $1. alance sheet as of January 1, 2020 and the fair value of follows: ANCE SHEET BETA- Book Value Jan 1, 2020 62,000 unts receivable 7,000

cquired 30% of Beta's common shares on January 1, 20 500 shares to Beta's shareholders. The market value o e of Alpha's shares is $1. alance sheet as of January 1, 2020 and the fair value of follows: ANCE SHEET BETA- Book Value Jan 1, 2020 62,000 unts receivable 7,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 4 (Recommended: review slides 3-30) Alpha acquired 30% of Beta's common shares on January 1, 2020 paying $80,000 in cash and issuing 1,500 shares to Beta's shareholders. The market value of each Alpha share is $21. The par value of Alpha's shares is $1. Beta's balance sheet as of January 1, 2020 and the fair value of Beta's assets and liabilities were as follows: BALANCE SHEET BETA -Fair Value BETA-Book Value Jan 1, 2020 Jan 1, 2020 Cash 62,000 62,000 Accounts receivable 7,000 7,000 Inventory 161,000 161,000 PPE net 20,000 57,000 Assets 250,000 287,000 Accounts payable 15,000 15,000 LT Liabilities 22,000 22,000 Preferred shares 10,000 Common stock 120,000 Retained eamings 83,000 Liabilities + Equity 250,000 37,000 The useful life of the plant equipment is 10 years. During 2020, Beta's net income was $35,000 and Beta paid $10,000 in regular and $5,500 in preferred dividends. During 2021, Beta's net income was $55,000 and Beta paid $10,000 in regular and $2,500 in preferred dividends. Alpha immediately begins supplying inventory to Beta as follow: Year Cost to Alpha Transfer price Amount held by Beta at the end of the year 25,000 2020 70,000 96,000 100,000 150,000 2021 45,000 Inventory held at the end of the year by Beta is sold at the beginning of the next year. The fair value of Beta's net assets at December 2020 is $237,500 and $235,000 at December 2021.
Transcribed Image Text:Problem 4 (Recommended: review slides 3-30) Alpha acquired 30% of Beta's common shares on January 1, 2020 paying $80,000 in cash and issuing 1,500 shares to Beta's shareholders. The market value of each Alpha share is $21. The par value of Alpha's shares is $1. Beta's balance sheet as of January 1, 2020 and the fair value of Beta's assets and liabilities were as follows: BALANCE SHEET BETA -Fair Value BETA-Book Value Jan 1, 2020 Jan 1, 2020 Cash 62,000 62,000 Accounts receivable 7,000 7,000 Inventory 161,000 161,000 PPE net 20,000 57,000 Assets 250,000 287,000 Accounts payable 15,000 15,000 LT Liabilities 22,000 22,000 Preferred shares 10,000 Common stock 120,000 Retained eamings 83,000 Liabilities + Equity 250,000 37,000 The useful life of the plant equipment is 10 years. During 2020, Beta's net income was $35,000 and Beta paid $10,000 in regular and $5,500 in preferred dividends. During 2021, Beta's net income was $55,000 and Beta paid $10,000 in regular and $2,500 in preferred dividends. Alpha immediately begins supplying inventory to Beta as follow: Year Cost to Alpha Transfer price Amount held by Beta at the end of the year 25,000 2020 70,000 96,000 100,000 150,000 2021 45,000 Inventory held at the end of the year by Beta is sold at the beginning of the next year. The fair value of Beta's net assets at December 2020 is $237,500 and $235,000 at December 2021.
2. What is the equity income in Beta to be reported by Alpha in 2020? (show your calculations). a. 7,980 b. 7,140 c. 9,390 d. 10,500 3. What is the balance of Alpha's Investment in Beta at December 2021? (show your calculations). a. 123,170 b. 125,230 c. 125,420 d. 128,030 4. What is the equity income in Beta to be reported by Alpha in 2021? (show your calculations). a. 12,780 b. 10,530 c. 13,395 d. 15,390
Transcribed Image Text:2. What is the equity income in Beta to be reported by Alpha in 2020? (show your calculations). a. 7,980 b. 7,140 c. 9,390 d. 10,500 3. What is the balance of Alpha's Investment in Beta at December 2021? (show your calculations). a. 123,170 b. 125,230 c. 125,420 d. 128,030 4. What is the equity income in Beta to be reported by Alpha in 2021? (show your calculations). a. 12,780 b. 10,530 c. 13,395 d. 15,390
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