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1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017,...

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Presents reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year.

Santa reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year. On the consolidated financial statements for 2017,

a)what amount should have been shown for Equity in Subsidiary Earnings?

A. $0.
B. $30,000.
C. $40,000.
D. $60,000.
E. $70,000.

b)what amount should have been shown for consolidated dividends?
A. $0.
B. $10,000.
C. $22,000.
D. $32,000.
E. $64,000.

c) What is the Investment in Santa Co. balance on Presents' books as of December 31, 2018, if the equity method has been applied?

A. $286,000.
B. $295,000.
C. $276,000.
D. $344,000.
E. $324,000.

2)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017. On that date, Santa had a building with a book value of $200,000 and a fair value of $410,000. Santa had equipment with a book value of $350,000 and a fair value of $340,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2017 related to Santa’s building acquired by Presents?

A. $19,000.
B. $21,000.
C. $20,000.
D. $41,000.
E. 0.

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Homework Answers

Answer #1

Answer:-

(a)

C) $40,000

Explanation:- net income of s's in 2017 $40,000 is shown in equity subsidiary earnings

(b)

D) $32,000

Expalnation:- dividend paid by s's and p's in 2017 for $10,000 and $22,000 will be shown in consolidated statements.

(c)

A) $286,000

Expalanation:- value of common stock $257,000

add:- net income $40,000

less:- dividend of 2017 ($10,000)

less:- amortization ($19,000)

$268,0000

add:- net income $47,000

less:- dividend ( $10,000)

less:- amortization ( $19,000)

  

Investment in 2018 $286,000

(d)

B) $21,000

Expalanation:- increase in value of building $210,000 ($410,000-$200,000)

remaining useful life 10

expense = 210000/10 = $21,000

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