Question

# Assume that, on January 1, 2018, Sosa Enterprises paid \$3,000,000 for its investment in 60,000 shares...

Assume that, on January 1, 2018, Sosa Enterprises paid \$3,000,000 for its investment in 60,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an eight-year remaining useful life and straight-line depreciation with no residual value for its depreciable assets.

At January 1, 2018, the book value of Orioles' identifiable net assets was \$7,000,000, and the fair value of Orioles was \$10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to \$1,800,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2018:
Net Income \$600,000
Dividends declared and paid \$360,000
Market price of common stock on 12/31/2018 \$80/share

What amount would Sosa Enterprises report in its year-end 2018 balance sheet for its investment in Orioles Co.?

\$3,000,000 + (30% x \$600,000 net income) (30% x \$360,000 dividends) (30% x \$1,200,000/8 yrs. of additional depreciation)

Please explain where the following numbers came from:
How is \$3,000,000 calculated? Where did 30% come from? How is \$1,200,000 calculated?

 Computation of Amount Reported in Balance Sheet Acquistion price for 50% share (60000/120000*100) \$3,000,000 Add: Net income (600000*50%) 300000 Less: dividend (360000*50%) -180000 Less: excess depreciation (1200000/8 yrs*50%)* -75000 ans Investment reported in Balance Sheet 2016 \$3,045,000

*Increase in Value of Asset(100Lac-70Lac):- 30 Lac

Allocation for LAnd: 18 Lac

Other Depreciable Asset (30-18):- 12 Lac.

Note: Answer mentioned above is not correct.

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