Prepare journal entries for the current year. 2. Compute the carrying amount of the investment at year end. 3. What is/are the rules for answering the problem?
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Problem 17-6 (IAA)
At the beginning of the current year, Divine Company acquired 40% of the outstanding ordinary shares of an investee for P6,500,000. The carrying amount of the net assets of the investee equaled P12,500,000.
Any excess cost over the carrying amount is attributable to equipment with remaining useful life of 10 years.
During the year, the investee reported a net loss of P4,000,000 and paid dividends of P2,500,000.
Required:
1. Prepare
2. Compute the carrying amount of the investment at year end.
3. What is/are the rules for answering the problem?
Step by step
Solved in 2 steps
- 24 At the beginning of the year, Fairbridge, Inc. purchased an investment in Miller Milling Mills for $500,000, representing 10% of the book value of Miller. During the year, Miller reported net income of $800,000 and pays cash dividends of $92,000. At the end of the year, the fair value of Fairbridge’s investment is $525,000. Required At what amount is the investment reported on Fairbridge’s balance sheet at year-end? What amount of income from investments does Fairbridge report? Prepare journal entries to record the transactions for Fairbridge Company.Problem 17-10 (AICPA Adapted) P7,000,000.. of the acquired net assets was P6,000,000. The excess of cost over carrying amount was attributed i. an identifiable intangible asset which was undervalued investee's statement of financial positión and which had . remaining useful life of ten years. on The investee reported net income of P1,800,000 for the current year and paid cash dividend of P600,000 on the ordinary shares. What is the carrying amount of the investment in associate at year-end? a. 6,780,000 b. 7,140,000 c. 7,000,000 d. 6,900,000INTANGIBLE ASSETS 8. An entity is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of the entity at current year-end was P10,000,000. What is the amount of goodwill if: Excess earnings are purchased for 5 years? Excess earnings are capitalized at 25%? Annual average earnings are capitalized at 25%? Excess earnings are discounted at 12% for 5 years? (The PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) 9. On January 1, 2021, an entity reported patent cost of P1,920,000 and related accumulated amortization of P240,000. The patent was purchased on January 1, 2019 at which date the remaining legal life was 16 years. On January 1, 2021, the useful life of the patent was determined to be only 8 years from the date of acquisition. On January 1, 2021, the entity paid P800,000, of which three-fourths was…
- 22. A company acuqires 80% of D company for $600,000 on January, 2020. D company reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $40,000 and buildings were undervalued by $50,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on annual review, goodwill has not been impaired. During 2020, D company reported net income of $90,000 and paid dividends of $30,000. Assume that equty method is applied. What is the acquisition value attributable to the non-controlling interest in D company at January 1,2020? Your answer:18. ABC Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of ABC' depreciable assets at December 31, 20X5 are as follows: Acquisition year – 20X3; Cost - P350,000; Residual value - 50,000; Accumulated depreciation - 240,000; Estimated useful life - 5 years; Using the same depreciation method as used in 20X3, 20X4, and 20X5, how much depreciation expense should ABC record in 20X6 for this asset?1. On January 1, 2021, PARKER Corp. acquired 40% of the outstanding ordinary shares of OSBORN Corp. for P 6,500,000. The carrying amount of net assets of OSBORN Corp. equaled P 12,500,000. Any excess of cost over carrying amount is attributable to equipment with remaining useful life of 10 years. During the year, OSBORN reported net loss of P 4,000,000 and paid dividends of P 2,500,000. Required: A. Prepare journal entries for the current year. B. Compute for the carrying amount of the investment at year-end.
- 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, 2022, P Company purchased 64,000 shares of the 80,000 outstanding shares of S Company at a price of P1,200,000, with an excess of P30,000 over the book value of S Company's net assets. P13,000 of the excess is attributed to an undervalued equipment with a remaining useful life of eight years from the date of acquisition and the rest of the amount is attributed to goodwill. For the year 2022, P Company reported a net income of P750,000 and paid dividends of P180,000, while S Company reported a net income of P240,000 and paid dividends to P Company amounting to P39,000. The retained earnings of P Company at the end of 2022 per books is P1,025,000. P Company uses the cost method to account for its investment in S Company and elected to measure non-controlling interest at fair value on date of acquisition. How much is the consolidated net income attributable to controlling interests?This year, Sigma Inc. generated $662,250 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months: Initial Sale Price O$ 75,000 41,750 Acc. Basis Depr.* $ 149,600 $ 103,600 Marketable securities Production equipment Business realty: Land Building 82,880 237,000 270,000 247,250 210,500 81,000 *Through date of sale. Required: a. Compute Sigma's taxable income assuming that it used the straight-line method to calculate depreciation on the building and has no nonrecaptured Section 1231 losses. b. Recompute taxable income assuming that Sigma sold the securities for $159,200 rather than $75,000.
- On July 1, 2018, Mundo Corporation purchased factory equipment for 50,000. Residual value was estimated at 2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2019 depredation expense of: a. 7,680 b. 9,000 c. 9,600 d. 10,000On 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 goodwillAccount MNO Corporation had the following information regarding its fixed assets: Beginning of the year: $500,000Additions during the year: $100,000Disposals during the year: $50,000Accumulated depreciation at the beginning of the year: $200,000Depreciation expense for the year: $50,000Calculate the net book value of fixed assets at the end of the year.
