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On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date Little's book value was $350,000. Little Co had the following misvalued/unreported assets and liabilities:

On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date Little's book value was $350,000. Little Co had the following misvalued/unreported assets and liabilities:

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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On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date Little's book value was $350,000. Little Co had the following misvalued/unreported assets and liabilities: 1. Land, undervalued by $10,000 2. Inventory, FIFO basis, overvalued by $7,000 3. Equipment, 5 year life, undervalued by $50,000 4. Bonds payable, 10 year life, overvalued by $20,000 Assume that Little reports earnings of $40,000 and pays dividends of $15,000 in 2022.
Transcribed Image Text:On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date Little's book value was $350,000. Little Co had the following misvalued/unreported assets and liabilities: 1. Land, undervalued by $10,000 2. Inventory, FIFO basis, overvalued by $7,000 3. Equipment, 5 year life, undervalued by $50,000 4. Bonds payable, 10 year life, overvalued by $20,000 Assume that Little reports earnings of $40,000 and pays dividends of $15,000 in 2022.
How much goodwill was inherent in this purchase? (XX,XXX) Assuming Big uses the equity method to account for their investment what would be the "investment income" Big reports in 2022? Question 1: is not 117,000 or 150,000 Question 2: is not 37,000 or 5,000 Please help and show work
Transcribed Image Text:How much goodwill was inherent in this purchase? (XX,XXX) Assuming Big uses the equity method to account for their investment what would be the "investment income" Big reports in 2022? Question 1: is not 117,000 or 150,000 Question 2: is not 37,000 or 5,000 Please help and show work
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