Question

Puta Company acquires 40% of the voting stock of Stanton Corporation for $8,000,000 on January 1,...

Puta Company acquires 40% of the voting stock of Stanton Corporation for $8,000,000 on January 1, 2016. At the time, the book value of Stanton was $15,000,000 and the excess paid over book value is attributed to previously unrecorded intangibles with an estimated remaining life of 10 years. Straight-line amortization is appropriate. During 2016, Stanton reported net income of $2,500,000 and paid dividends of $600,000. Both companies have December 31 year-ends, and there is no impairment of the investment.

What is the investment balance on December 31. 2016, reported on Potter's balance sheet?

a. $7,760,000

b.$8,200,000

c.$8,560,000

d. $8,000,000

Business   Accounting   
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Answer #1
Amount $
Purchase Consideration        8,000,000
Less: Net Assets Acquired        6,000,000
(15,000,000 x 40% )
Attributed to unrecorded intangibles       2,000,000
Amount $
Purchase Consideration        8,000,000
Add: Share of Net Income ( 2,500,000 x 40% )        1,000,000
Less: Annual amortization ( 2,000,000 /10 )          200,000
Less: Dividend received ( 600,000 x 40% )          240,000
Investment balance on December 31. 2016       8,560,000
Correct answer is option C .
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