On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,000,000 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, 2020, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount 125,000 5,135,000 $ Fair Value 125,000 5,940,000 4,030,000 115,000 165,000 (200,000) 2,030,000 (200,000) Cash and receivables Computing equipment Patented technology Trademark Liabilities Also, as of January 1, 2020, 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 goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Dividends Declared $ 165,000 175,000 2020 2021 $ Net Income $ 1,830,000 2,015,000 a. How much of Ridge Road's $3,000,000 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 2020 and 2021? c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,000,000 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, 2020, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount 125,000 5,135,000 $ Fair Value 125,000 5,940,000 4,030,000 115,000 165,000 (200,000) 2,030,000 (200,000) Cash and receivables Computing equipment Patented technology Trademark Liabilities Also, as of January 1, 2020, 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 goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: Dividends Declared $ 165,000 175,000 2020 2021 $ Net Income $ 1,830,000 2,015,000 a. How much of Ridge Road's $3,000,000 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 2020 and 2021? c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Kk.3.
Subject :- Account
Transcribed Image Text:On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,000,000 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, 2020, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow:
Carrying Amount Fair Value
$
$
125,000
O Cash and receivables
Computing equipment
Patented technology
Trademark
Liabilities
2020
2021
125,000
5,135,000
115,000
165,000
(200,000)
Also, as of January 1, 2020, 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 goodwill any unidentified excess cost.
During the next two years, Sauk Trail reported the following net income and dividends:
Dividends
Declared
$ 165,000
175,000
Net Income
$ 1,830,000
2,015,000
5,940,000
4,030,000
2,030,000
(200,000)
a. How much of Ridge Road's $3,000,000 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 2020 and 2021?
c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education