Question

On 1/1/2019 Company XXX purchased 30% of shares of YYY Company for $ 250,000. On this date, YYY had stockholders’ equity of $ 500,000. The book values of YYY’s net assets approximated their fair values, except for land, which had fair value exceeding its book value by $ 200,000, and inventory, which had book value exceeding its fair value by $ 10,000 (all sold in 2019). In 2019, YYY reported net income of $ 100,000 and paid $ 20,000 in dividends. XXX uses the equity method to account for this investment:

REQUIRED

a-      Calculate the balance of the “Investment in YYY” account on 31/12/2019 (Show your computations).

b-      Calculate the balance of the “Income from YYY” account on 31/12/2019 (before closing it in Income Summary) (Show your computations).

c-       Calculate XXX’s share of the goodwill of YYY (Show your computations).

Answer 1