E 2-5 Calculate income and investment balance allocation of excess to undervalued assets Pop Company acquired a 30 percent interest in Son on January 1 for $500,000 cash. Assume the cost of the investment equals the fair value of Son’s net assets. Pop assigned the $125,000 excess of fair value over book value of the interest acquired to the following assets: Inventories $25,000 (sold in the current year) Building $50,000 (4-year remaining life at January 1) Goodwill $50,000 During the year Son reported net income of $200,000 and paid $50,000 dividends. Required Determine Pop’s income from Son for the year. Determine the December 31 balance of the Investment in Son account.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
E 2-5 Calculate income and investment balance allocation of excess to undervalued assets
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Pop Company acquired a 30 percent interest in Son on January 1 for $500,000 cash. Assume the cost of the investment equals the fair value of Son’s net assets. Pop assigned the $125,000 excess of fair value over book value of the interest acquired to the following assets:
Inventories
$25,000 (sold in the current year)
Building
$50,000 (4-year remaining life at January 1)
Goodwill $50,000
During the year Son reported net income of $200,000 and paid $50,000 dividends.
Required
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Determine Pop’s income from Son for the year.
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Determine the December 31 balance of the Investment in Son account.
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