On January 1, 2023, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Incorporated, for $4,500,000 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, 2023, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount $ 200,000 5,810,000 Fair Value $ 200,000 7,140,000 4,180,000 2,180,000 (275,000) Assets and Liabilities Cash and Receivables Computing Equipment Patented Technology Trademark Liabilities Also, as of January 1, 2023, 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: Years 2023 2024 190,000 240,000 (275,000) Net Income $ 1,980,000 2,165,000 Dividends Declared $ 240,000 250,000 Required: a. How much of Ridge Road's $4,500,000 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 2023 and 2024? c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2023 and 2024?
On January 1, 2023, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Incorporated, for $4,500,000 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, 2023, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount $ 200,000 5,810,000 Fair Value $ 200,000 7,140,000 4,180,000 2,180,000 (275,000) Assets and Liabilities Cash and Receivables Computing Equipment Patented Technology Trademark Liabilities Also, as of January 1, 2023, 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: Years 2023 2024 190,000 240,000 (275,000) Net Income $ 1,980,000 2,165,000 Dividends Declared $ 240,000 250,000 Required: a. How much of Ridge Road's $4,500,000 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 2023 and 2024? c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2023 and 2024?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2023, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Incorporated, for $4,500,000 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, 2023, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow:
Carrying Amount
$ 200,000
5,810,000
Fair Value
$ 200,000
7,140,000
4,180,000
2,180,000
(275,000)
Assets and Liabilities
Cash and Receivables
Computing Equipment
Patented Technology
Trademark
Liabilities
Also, as of January 1, 2023, 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
$ 240,000
250,000
Years
2023
2024
190,000
240,000
(275,000)
Net Income
$ 1,980,000
2,165,000
Required:
a. How much of Ridge Road's $4,500,000 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 2023 and 2024?
c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2023 and 2024?
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