Problem 6 Calculating the Mid-Year Acquisition On July 1, 2011, PAL Corporation purchased 6,000 shares of SABB's common voting stock in cash at $16 per share. On this date, SABB's equity consisted of $100,000, share capital (the nominal value of the share is $10), $20,000 in retained earnings from previous years, and $10,000 in current earnings (for the 2011 half year). SABB's income for the year 2011 was $20,000, and dividends were paid in the amount of $12,000 on November 1, 2011. If you know that the book values of the assets and liabilities of SABB are equivalent to their fair value on July 1, 2011, and that any differences between the cost of investments and the book value acquired must be allocated to equipment that is depreciated over a period of 10 years. Calculate the correct values for each of the following two items using the equity method to account for (BAL) investments: 1. Income of (PAL) company from its investments in (Saba) for the year ended on December 31, 2011.
Problem 6 Calculating the Mid-Year Acquisition On July 1, 2011, PAL Corporation purchased 6,000 shares of SABB's common voting stock in cash at $16 per share. On this date, SABB's equity consisted of $100,000, share capital (the nominal value of the share is $10), $20,000 in retained earnings from previous years, and $10,000 in current earnings (for the 2011 half year). SABB's income for the year 2011 was $20,000, and dividends were paid in the amount of $12,000 on November 1, 2011. If you know that the book values of the assets and liabilities of SABB are equivalent to their fair value on July 1, 2011, and that any differences between the cost of investments and the book value acquired must be allocated to equipment that is depreciated over a period of 10 years. Calculate the correct values for each of the following two items using the equity method to account for (BAL) investments: 1. Income of (PAL) company from its investments in (Saba) for the year ended on December 31, 2011.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Problem 6
Calculating the Mid-Year Acquisition
On July 1, 2011, PAL Corporation purchased 6,000 shares of SABB's
common voting stock in cash at $16 per share. On this date, SABB's
equity consisted of $100,000, share capital (the nominal value of the
share is $10), $20,000 in retained earnings from previous years, and
$10,000 in current earnings (for the 2011 half year). SABB's income
for the year 2011 was $20,000, and dividends were paid in the
amount of $12,000 on November 1, 2011. If you know that the book
values of the assets and liabilities of SABB are equivalent to their fair
value on July 1, 2011, and that any differences between the cost of
investments and the book value acquired must be allocated to
equipment that is depreciated over a period of 10 years.
Calculate the correct values for each of the following two items using
the equity method to account for (BAL) investments: 1. Income of
(PAL) company from its investments in (Saba) for the year ended on
December 31, 2011.
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