Question

Dok Company acquired a 30 percent interest in Oak Company on January 1 for $1,000,000. Assume...

Dok Company acquired a 30 percent interest in Oak Company on January 1 for $1,000,000. Assume the cost of the investment equals the fair value of Oak’s net assets. Dok assigned the $250,000 excess of fair value over book value of the interest acquired to the following assets:

                        Inventories                                          $ 50,000 (sold in the current year)

                        Building                                               $100,000 (4-year remaining life at January 1)                        Goodwill                                              $100,000

During the year Oak reported net income of $400,000 and paid $100,000 dividends.

Required:

  1. Determine Dok’s income from Oak for the year.
  2. Determine the December 31 balance of the Investment in Oak account.
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