On January 1, 2022, Pastel Inc. (Pastel) purchased 97,500 voting shares of Sunny Corporation (Sunny) for $253,500. Sunny has 150,000 outstanding voting. On that date, Sunny's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Sunny's book values approximated its fair values on the acquisition date with the exception of the company's patent, which was estimated to have a fair value that was $70,000 in excess of its recorded book value. The patent had a useful life of 14 years on acquisition date. Both companies use straight line amortization exclusively. On January 1, 2023, Pastel purchased an additional 9,000 shares of Sunny on the open market for $27,000. On this date, Sunny's book values were equal to its fair values with the exception of the company's equipment, which is undervalued by $60,000. The equipment's estimated useful life is 5 years. Sunny's net income and dividends for 2022 and 2023 are as follows:
On January 1, 2022, Pastel Inc. (Pastel) purchased 97,500 voting shares of Sunny Corporation (Sunny) for $253,500. Sunny has 150,000 outstanding voting. On that date, Sunny's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Sunny's book values approximated its fair values on the acquisition date with the exception of the company's patent, which was estimated to have a fair value that was $70,000 in excess of its recorded book value. The patent had a useful life of 14 years on acquisition date. Both companies use straight line amortization exclusively. On January 1, 2023, Pastel purchased an additional 9,000 shares of Sunny on the open market for $27,000. On this date, Sunny's book values were equal to its fair values with the exception of the company's equipment, which is undervalued by $60,000. The equipment's estimated useful life is 5 years. Sunny's net income and dividends for 2022 and 2023 are as follows:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On January 1, 2022, Pastel Inc. (Pastel) purchased 97,500 voting shares of Sunny Corporation (Sunny) for $253,500.
Sunny has 150,000 outstanding voting.
On that date, Sunny's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Sunny's
book values approximated its fair values on the acquisition date with the exception of the company's patent, which was
estimated to have a fair value that was $70,000 in excess of its recorded book value. The patent had a useful life of 14
years on acquisition date. Both companies use straight line amortization exclusively.
On January 1, 2023, Pastel purchased an additional 9,000 shares of Sunny on the open market for $27,000. On this date,
Sunny's book values were equal to its fair values with the exception of the company's equipment, which is undervalued by
$60,000. The equipment's estimated useful life is 5 years.
Sunny's net income and dividends for 2022 and 2023 are as follows:
Net Income
Dividends
2022
$60,000
$9,000
2023
$80,000
$14,000
Neither company has contributed surplus on its separate-entity balance sheets at the end of 2022 or 2023.
Sunny's goodwill suffered an impairment loss of $8,000 during 2022.
Pastel uses the equity method to account for its investment in Sunny.
Which of the following is the correct amount of goodwill arising from Pastel's January 1, 2022 acquisition?
Transcribed Image Text:Which of the following is the correct amount of goodwill arising from Pastel's January 1, 2022 acquisition?
Multiple Choice
О
$59,500
О
$70,000
О
$240,000
О
$170,000
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