On January 4, 2011, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose book values and fair values differed: BV FV Building (20-year life) $1,000,000 $1,800,000 Equipment (5-year life) $1,500,000 $2,000,000 Franchise (10-year life) $0 $700,000 Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported a net income of $400,000 for 2011 and paid dividends of $200,000 during that year. a. What is the amount of the excess of the purchase price over book value? b. How much goodwill is associated with this investment?
On January 4, 2011, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose book values and fair values differed: BV FV Building (20-year life) $1,000,000 $1,800,000 Equipment (5-year life) $1,500,000 $2,000,000 Franchise (10-year life) $0 $700,000 Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported a net income of $400,000 for 2011 and paid dividends of $200,000 during that year. a. What is the amount of the excess of the purchase price over book value? b. How much goodwill is associated with this investment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
On January 4 2011, Bailey corp purchased 40% of the voting common stock.. Accounting
Transcribed Image Text:On January 4, 2011, Bailey Corp. purchased 40% of the voting common stock of Emery
Co., paying $3,000,000. Bailey properly accounts for this investment using the equity
method. At the time of the investment, Emery's total stockholders' equity was
$5,000,000. Bailey gathered the following information about Emery's assets and
liabilities whose book values and fair values differed:
BV
FV
Building (20-year life) $1,000,000 $1,800,000
Equipment (5-year life) $1,500,000 $2,000,000
Franchise (10-year life) $0
$700,000
Any excess of cost over fair value was attributed to goodwill, which has not been
impaired. Emery Co. reported a net income of $400,000 for 2011 and paid dividends
of $200,000 during that year.
a. What is the amount of the excess of the purchase price over book value?
b. How much goodwill is associated with this investment?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
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