P 2-6 Computations for a midyear acquisition Pam Corporation purchased for cash 6,000 shares of voting common stock of Sun Corporation at $16 per share on July 1, 2016. On this date, Sun’s equity consisted of $100,000 of $10 par capital stock, $20,000 retained earnings from prior periods, and $10,000 current earnings (for one-half of 2016). Sun’s income for 2016 was $20,000, and it paid dividends of $12,000 on November 1, 2016. All of Sun’s assets and liabilities had book values equal to fair values at July 1, 2016, and any differences between investment cost and book value acquired should be assigned to equipment and amortized over a 10-year period. Required Compute the correct amounts for each of the following items using the equity method of accounting for Pam’s investment: Pam’s income from its investment in Sun for the year ended December 31, 2016. The balance of Pam’s Investment in Sun account at December 31, 2016. (Note: Assumptions on page 49 are needed for this problem.)
P 2-6 Computations for a midyear acquisition
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Pam Corporation purchased for cash 6,000 shares of voting common stock of Sun Corporation at $16 per share on July 1, 2016. On this date, Sun’s equity consisted of $100,000 of $10 par capital stock, $20,000
retained earnings from prior periods, and $10,000 current earnings (for one-half of 2016).Sun’s income for 2016 was $20,000, and it paid dividends of $12,000 on November 1, 2016.
All of Sun’s assets and liabilities had book values equal to fair values at July 1, 2016, and any differences between investment cost and book value acquired should be assigned to equipment and amortized over a 10-year period.
Required
Compute the correct amounts for each of the following items using the equity method of accounting for Pam’s investment:
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Pam’s income from its investment in Sun for the year ended December 31, 2016.
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The balance of Pam’s Investment in Sun account at December 31, 2016.
(Note: Assumptions on page 49 are needed for this problem.)
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