On January 1, Year 1, RAK, Inc acquired a 25% interest in Tech Corp. for $375,000. At the date of acquisition, the net assets had a fair value in excess of shareholders' equity of $200,000. The fair value in excess of book value is the result of equipment with a remaining useful life of four years. For the year ended December 31, Year 1. Tech had net income of $60,000 and RAK received a dividend of $10,000 from Tech. At December 31, Year 1, Tech had shareholders' equity of $820,000. What is the amount of goodwill associated with RAK's purchase of Tech? O $175,000 O $170,000 O $125,000 O $93,750

On January 1, Year 1, RAK, Inc acquired a 25% interest in Tech Corp. for $375,000. At the date of acquisition, the net assets had a fair value in excess of shareholders' equity of $200,000. The fair value in excess of book value is the result of equipment with a remaining useful life of four years. For the year ended December 31, Year 1. Tech had net income of $60,000 and RAK received a dividend of $10,000 from Tech. At December 31, Year 1, Tech had shareholders' equity of $820,000. What is the amount of goodwill associated with RAK's purchase of Tech? O $175,000 O $170,000 O $125,000 O $93,750

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

On January 1, Year 1, Test Company purchased 300,000 shares of A Company common stock for $20 per share. The investment represents a 25% ownership interest and gives Test Company the ability to significantly influence the investee. On the date of acquisition, the fair value of A Company's net assets exceeded the book value by $400,000. The amount is attributable to buildings with a remaining useful life of 20 years. During both Year 1 and Year 2, A Company paid dividends of $0.25 per share. A Company reported net income of $1,000,000 for the year ended December 31, Year 1 and $1,200,000 for the year ended December 31 Year 2. The fair value of A Company's common stock was $21 per share on December 31, Year 1 and $22 per share on December 31, Year 2. Assume that Tests Company held no other investments during Year 1 or Year 2. Determine the amount that pretax income would increase (decrease) in Year 2 as a result of the investment. Give your answer using dollar signs and commas but not…
On January 1, 20X3, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol uses the cost method in accounting for its investment in Shipping. Shipping's reported retained earnings of $75,000 on the date of acquisition. The trial balances for Plimsol Company and Shipping Corporation as of December 31, 20X4, follow: 24 Item Current Assets Depreciable Assets (net) Investment in Shipping Corporation Other Expenses Depreciation Expense Dividends Declared Current Liabilities Long-Term Debt Common Stock Retained Earnings Sales Dividend Income Plimsol Company Debit Credit $ 160,000 180,000 125,000 85,000 20,000 30,000 Shipping Corporation Debit Credit $ 115,000 135,000 60,000 15,000 15,000 $ 25,000 75,000 100,000 210,000 175,000 15,000 $ 600,000 $ 600,000 $ 340,000 $ 340,000 $ 20,000 50,000 50,000 Required: 1. Provide all consolidating entries required to prepare a full set of consolidated statements for 20X4. 2. Prepare a three-part…
On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Incorporated’s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $0.85 per share dividend.
On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An undervalued asset attributableto building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities of S Companyhad book value approximated their fair market value.On January 1, 20x1 P’s common stock and retained earnings amounted to P1,000,000 and P800,000, respectively,while S Company’s retained earnings is P600,000.The 20x1 net income and dividends using cost (or initial value) method that was as follows;Net Income DividendsP Company P340,000 P100,000S Company P150,000 P50,000On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The gain onthe sale is included in the net income of S Company indicated above. The equipment is expected to have to have aremaining useful life of five years from the date of sale.On September 30,…
On December 31, 2008, Mercury Corporation acquired 100% ownership of Saturn Corporation. On that date, Saturn reported assets and liabilities with book values of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and retained earnings of $150,000. The book values and fair values of Saturn's assets and liabilities were same except land which had increased in value by $10,000 and inventories which had decreased by $5,000 Based on the preceding information, what amount of goodwill will be reported if the acquisition price was $240,000? Select one: a. 35,000 b. 40,000 c. 15,000 d. 0
On January 2, Year 1 Parent Company paid $1,200,000 for 100% of the voting common stock of Sub Corp. At the time of the investment, Sub Corp had net assets with a book value of $800,000 and fair value of $1,000,000. The fair value increase is attributable to the building and will be amortized over 10 years. During year 1, Sub earned net income of $100,000 and paid dividends of $20,000. Any excess cost over fair value is attributable to goodwill with an indefinite life. What is the amount of goodwill from Parent's investment in Sub? O $200,000 O $400,000 O $1,200,000 O $20,000 QUESTION 2 What is the balance in Parent's investment account at December 31, Year 1? O $1,260,000 O $1,200,000 O $1,340,000 O $1,280,000
On December 31, 20X8, Mercury Corporation acquired 100 percent ownership of Saturn Corporation. On that date, Saturn reported assets and liabilities with book values of $400,000 and $100,000, respectively, common stock outstanding of $50,000, and retained earnings of $250,000. The book values and fair values of Saturn's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had increased by $5,000. Based on the preceding information, what amount will be the differential, if the acquisition price was $500,000? Group of answer choices Zero $185,000 $100,000 $200,000
Livermore Corporation acquired 90 percent of Tiger Corporation's voting stock on January 1,20X2, for $450,000. The fair value of the noncontrolling interest was $50,000 at the date of acquisition. Tiger reported common stock outstanding of $100,000 and retained earnings of $280,000. The differential is assigned to buildings with an expected life of 15 years at the date of acquisition. On December 31,20X4, Livermore had $30,000 of unrealized profits on its books from inventory sales to Tiger, and Tiger had $40,000 of unrealized profit on its books from inventory sales to Livermore. All inventory held at December 31, 20X4, was sold during 20 x5. On December 31,20 X5, Livermore had $18,000 of unrealized profit on its books from inventory sales to Tiger, and Tiger had unrealized profit on its books of 45,000 from inventory sales to Livermore. In 20x5 Tiger reported net income of $225,000. The amount Livermore will report as income from Tiger Company for year 20x5would be
Par inc purchased 72.37% of Sub Corp's total outstanding voting shares for $331,927 on January 1, Year 3. The carrying value of Sub's identifiable net assets was $284,506 on that date. All of Sub's assets and liabilities had their fair values and carrying values the same, except for a Patent whose fair value was $47,412 higher on the date of acquisition. On the next day, Par sold 10.53% of its Sub shares on the open market for $54,771. What is the amount of Goodwill arising from the acquisition on January 1? O a. $282,881 O b. $290,738 O. $298,596 O d. $314,312 O e. $306,454
On January 1, Barnyard Corporation acquired common stock of Fresh Hay Corporation. At the time of acquisition, the book value and the fair value of Fresh Hay Corporation's net assets were $1 billion. During the year, Fresh Hay Corporation reported net income of $480 million and declared dividends of $160 million. The fair value of the shares increased by 10 percent during the year. How much income would Barnyard Corporation report for the year related to its investment under the assumption that it:A. Paid $150 million for 15 percent of the common stock and uses the fair value method to account for its investment in Fresh Hay Corporation. (Pay attention to the "fair value method" mention, some who attempted to answer this question got it wrong because they missed that). B. Paid $300 million for 30 percent of the common stock and uses the equity method to account for its investment in Fresh Hay Corporation. Please show all your steps so we can follow what we might be doing wrong.
On January 1, 2021, Flesh-n-Bone Corporation acquired 30% of Doug Corporation's 200,000 outstanding shares at P50 per share. Doug's net assets had a book value on the same date at P8,200,000. On the acquisition date, the following assets were deemed understated: Building having a remaining useful life of 20 years was understated by P1,500,000. Equipment having a remaining life of 10 years was understated by P500,000. Doug reported net income for the year at P2,000,000 and paid cash dividends of P10 per share by December 31. 20. How much investment income should be reported in Flesh-n-Bone Corporation's profit or loss for 2021? a. 600,000 b. 577,500 c. 622,500 d. 562,500 21. What is the carrying amount of the investment in Doug as of December 31, 2021? a. 3,562,500 b. 3,000,000 c. 3,622,500 d. 3,022,500 The answer for number 20 is Letter C and for number 21 is Letter D. Please provide the solution for the two items showing the correct answers above.
s