Question

Please explain the answers. Perimeter, Inc. acquired 30 percent of South Co.'s (South) voting stock for...

Please explain the answers.

Perimeter, Inc. acquired 30 percent of South Co.'s (South) voting stock for $200,000 on January 1, 20X1. Perimeter's 30 percent interest in South gave Perimeter the ability to exercise significant influence over South's operating and financial policies. On that date, South reported assets of $500,000 and liabilities of $100,000. South had equipment with a book value of $60,000 that was actually worth $160,000. The equipment had a remaining useful life of five years. During 20X1, South reported net income of $80,000 and paid dividends of $50,000. What amount of income should Perimeter recognize in 20X1 as a result of this investment?

$15,000
$16,750
$4,000
$18,000

Pail, Inc. holds 100 percent of the common stock of Shovel Company, an investment acquired for $680,000. Immediately following the combination, Pail's net assets have a book value of $1,150,000 and a fair value of $1,390,000. The book value and the fair value of Shovel's net assets on the date of combination are $400,000 and $550,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared.

Based on the information given above, at what amount will Pail's investment in Shovel stock be reported in the consolidated balance sheet?

$0
$440,000
$400,000

$480,000

Paris, Inc. holds 100 percent of the common stock of Stockholm Company, an investment acquired for $520,000. Immediately following the combination, Paris's net assets have a book value of $900,000 and a fair value of $1,050,000. The book and fair value of Stockholm's net assets on the date of combination are $350,000 and $425,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared.

Based on the information given above, what will be the amount of net assets reported in the consolidated balance sheet?

$1,325,000
$1,420,000
$900,000
$1,250,000

Homework Answers

Answer #1

1) Calculation of income to be recognized in 2011 as a result of investment:

Particulars Amount
Share of Net income(80,000*30%) $24,000

Less: Amortization of equipment in excess of book value

[(160,000-60,000)/5 years * 30%]

$6,000
Amount of income to be recognized $18,000

Therefore the correct option is (d)

2) Pail's investment in Shovel stock to be reported in the consolidated balance sheet = $0

Therefore the correct option is (a)

3) Calculation

Paris's net assets book value $900,000
Less: Investment in subsidiary $520,000
Berlin's net assets book value excluding investment $380,000
Add: Fair value of Sea’s net assets $425,000
Add: Goodwill (520000-425000) $95,000
Net assets reported in the consolidated balance sheet $900,000

Therefore the correct option is (c)

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