On June 30, 2020, Cape Company purchased 25% of the outstanding ordinary shares of Bit Co. at a total cost of P2,100,000.  The book value of Bit Co.’s net assets on acquisition date was P7,200,000.  For the following reasons, Cape was willing to pay more than book value for Bit Co. stock:   Bit Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years. Bit co. owns a tract of land with a current fair value of P900,000 more than its carrying amount. All other identifiable tangible and intangible assets of Bit Co. have current fair values that are equal to their carrying amounts. Bit reported net income of P1,620,000, earned evenly during the current year ended December 31, 2020.  Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders.    Market value of Bit Co.’s ordinary shares at December 31, 2020 is P9 million.  Cape Company’s financial year-end is December 31.   What is the amount of goodwill paid by Cape Company?    What amount of investment revenue should Cape report on its income statement for the year ended December 31, 2020 under the equity method?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

On June 30, 2020, Cape Company purchased 25% of the outstanding ordinary shares of Bit Co. at a total cost of P2,100,000.  The book value of Bit Co.’s net assets on acquisition date was P7,200,000.  For the following reasons, Cape was willing to pay more than book value for Bit Co. stock:

 

  • Bit Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years.
  • Bit co. owns a tract of land with a current fair value of P900,000 more than its carrying amount.
  • All other identifiable tangible and intangible assets of Bit Co. have current fair values that are equal to their carrying amounts.

Bit reported net income of P1,620,000, earned evenly during the current year ended December 31, 2020.  Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders. 

 

Market value of Bit Co.’s ordinary shares at December 31, 2020 is P9 million.  Cape Company’s financial year-end is December 31.

 

  • What is the amount of goodwill paid by Cape Company? 

 

  • What amount of investment revenue should Cape report on its income statement for the year ended December 31, 2020 under the equity method? 
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Accounting for Intangible assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education