Question

On January 1st 2011, Green Corp purchased 20% of the outstanding voting common stock of Gold...

On January 1st 2011, Green Corp purchased 20% of the outstanding voting common stock of Gold Company for $300000. The book value of the acquired shares was $275000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of 5 years. For the year ended December 31st 2011, Gold reported net income of $125000 and paid cash dividends of $25000. What is the carrying value of Greens investment in Gold at December 31st 2011?

A. $320,000
B. $300,000
C. $315,000
D. $295,000

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Answer #1

C. 315,000 is correct

Particulars Amount Explanation
Investment amount             300,000
Add: share of earnings               25,000 =125000*20%
Less: share of dividends                  5,000 =25000*20%
Less: Intangible written off                  5,000 =25000/5
Closing balance             315,000

Intangible asset value at beginning = 300000-275000 = 25000

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