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: Cash and receivables Computing equipment Patented technology Trademark Liabilities Carrying Amount $ 125,000 5,135,000 115,000 165,000 (200,000) $ Fair Value 125,000 5,940,000 4,030,000 2,030,000 (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: 2020 2021 Net Income $ 1,830,000 2,015,000 Dividends Declared $ 165,000 175,000 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? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 20212
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: Cash and receivables Computing equipment Patented technology Trademark Liabilities Carrying Amount $ 125,000 5,135,000 115,000 165,000 (200,000) $ Fair Value 125,000 5,940,000 4,030,000 2,030,000 (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: 2020 2021 Net Income $ 1,830,000 2,015,000 Dividends Declared $ 165,000 175,000 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? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 20212
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
Cash and receivables
Computing equipment
Patented technology
Trademark
Liabilities
Carrying Amount
$ 125,000
5,135,000
115,000
165,000
(200,000)
$
Fair Value
125,000
5,940,000
4,030,000
2,030,000
(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:
2020
2021
Net Income
$ 1,830,000
2,015,000
Dividends
Declared
$ 165,000
175,000
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?
What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 20212
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