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

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

See similar textbooks

Similar questions

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 hadnet 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 amount would RAK show as investment in Tech Corp. at the end of Year 1? $380,000 $375.000 $367,500 $357,500
On January 1, Year 1, Big Corporation acquired 40% interest in Small Company for $300,000. At the date of acquisition, Small Company's equity (net assets) had a book value of $550,000 and a fair value of $600,000. The difference between the book value and the fair value relates to equipment being depreciated over the remaining useful life of 10 years. During Year 1, Small Company had net income of $900,000 and paid a $40,000 dividend. Required: 1. Prepare the journal entries required in year 1 to account for the investment in Small Company. 2. Compute the asset fair value difference and goodwill
On January 1, Year 1, Big Corporation acquired 40% interest in Small Company for $300,000. At the date of acquisition, Small Company's equity (net assets) had a book value of $550,000 and a fair value of $600,000. The difference between the book value and the fair value relates to equipment being depreciated over the remaining useful life of 10 years. During Year 1, Small Company had net income of $900,000 and paid a $40,000 dividend. Required: 3. Record the journal entry to depreciate the fair value difference 4. Determine the investment-related amounts to be reported at year-end on Big Corporation's balance sheet
GIGİ Group completed an acquisition of an interest in another business, Venice Company, during the year and paid $300,000 in purchasing 25% interests in Venice. At the acquisition date, the acquisition-date fair value of the net assets of Venice was $800,000 while the net assets of Venice in the financial statements amounted to $600,000. At financial year end of GiGi, the net assets of Venice increased to $700,000. Determine the carrying amount of the investment in Venice at financial year end. Select one: a. $200,000 b. $275,000 c. $175,000 d. $325,000
On January 1 of the current year, Yellow Company purchased 40% of the outstanding ordinary shares of Orange company paying P2,560,000 when the carrying amount of the net assets of Orange equaled P5,000,000. The difference was attributed to equipment which had a carrying amount of P2,200,000 and a fair value of P3,600,000. The remaining useful life of the equipment was 4 years. During the current year, Orange company, reported net income of P1,600,000 and paid cash dividends of P1,000,000. What amount should be reported as investment income for the current year? O 640,000 O 400,000 500,000 O 560,000
On January 1, Year 1, East Company purchased West Company. East Company paid $670,000 cash and assumed all of West Company's liabilities. West's books showed tangible assets of $578,000, liabilities of $54,000, and equity of $632,000. An appraiser assessed the fair market value of the tangible assets at $622,000 at the date of acquisition. On December 31, Year 4 East determines that the goodwill suffered a $32,000 permanent impairment. However, on December 31, Year 6 East estimated that it had recovered $12,000 of the impairment that had previously been considered to be permanent impairment. Based on this information, the book value of the goodwill shown on the December 31, Year 6 balance sheet is: Multiple Choice O O O $102,000. $134,000. $54,000. $70,000.
On January 1, Year 4, Grant Corporation bought 8,000 (80%) of the outstanding common shares of Lee Company for $70,000 cash. On that date, Lee had $25,000 of common shares outstanding and $30,000 retained earnings. Also on that date, the carrying amount of each of Lee's identifiable assets and liabilities was equal to its fair value except for the following: The patent had an estimated useful life of 5 years at January 1, Year 4, and the entire inventory was sold during Year 4. Grant uses the cost method to account for its investment. Additional Information The recoverable (unimpaired) amount for goodwill was determined to be $10,000 on December 31, Year 6. The goodwill impairment loss occurred in Year 6. Grant's accounts receivable contains $30,000 owing from Lee. Amortization expense is grouped with distribution expenses and impairment losses are grouped with other expenses. The following are the separate-entity financial statements of Grant and Lee as of December 31, Year 6.…
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…
At the beginning of the year, Parent Co. acquired 70% interest in Subsidiary Co. On acquisition date, Subsidiary’s identifiable assets approximated their fair values except for an inventory whose fair value exceeded its carrying amount by P10,000 and a building whose fair value exceeded its carrying amount by P80,000. The building has a remaining useful life of 5 years. At the end of the year, Parent Co. and Subsidiary Co. reported profits of P400,000 and P80,000, respectively. No dividends were declared by either entity during year. There were also no inter-company transactions and impairment in goodwill. How much is the consolidated profit attributable to owners of the parent?
Pirate Corporation purchased 100 percent ownership of Ship Company on January 1, 20X5, for $271,000. On that date, the book value of Ship’s reported net assets was $209,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Ship in the following periods were as shown below: Year Net Income Dividends 20X5 $ 25,000 $ 16,000 20X6 45,000 26,000 20X7 25,000 42,000 Required: Prepare journal entries on Pirate Corporation’s books relating to its investment in Ship Company for each of the three years, assuming it accounts for the investment using the equity method.
On January 1, 20x1, ALLEVIATE Co. acquired 30,000 ordinary shares representing 30% interest in LESSEN Co.'s net assets for $12,000,000. At the time of acquisition, LESSEN's net assets had a fair value of $40,000,000 and a carrying amount of $32,000,000. The difference between the fair value and the carrying amount is attributable to a building which has a remaining useful life of 10 years. In 20x1, LESSEN reported profit of $4,000,000 and paid cash dividends of $2,400,000. LESSEN's shares were selling at $400 per share on December 31, 20x1. On July 1, 20x2, ALLEVIATE sold 60% of its investment in LESSEN at the prevailing market price of $480 per share. The retained interest does not give ALLEVIATE significant influence over LESSES; thus, ALLEVIATE reclassified the remaining investment to held for trading securities. LESSEN reported interim profit of $2,000,000 for the six months ended June 30, 20x2. LESSEN reported total profit of $4,800,000 in 20x2 and declared $4,000,000 cash…
At the beginning of the current year, Big Company purchased 25% of the outstanding ordinary shares of Small company paying P5,000,000. On this date, the carrying amount of the net assets of Small equaled to P16,000,000. The difference was attributed to an excess of fair value over carrying amount of an equipment amounting to P3,000,000. The equipment has a remaining useful life of five years. In addition, Small's inventory had a carrying amount of P3,400,000 but was determined to have a fair value of P4.400,000. 75% of the inventory was sold during the year. At the end of the current year, Small company, reported net income of P1,600,000 and paid cash dividends of P1,000,000. What is the carrying amount of the investment at the end of the year?