Chapter 1 Problem 11-26 to 30
Problem 11-26 Answer A
Acquisition cost 4,000,000
Share in net income (10% x 5,000,000) 500,000
Share in cash dividend (10% x 1,500,000) ( 150,000)
Carrying value 4,350,000
Problem 11-27 Answer D
Acquisition cost (squeeze) 1,720,000
Share in net income (25% x 1,200,000) 300,000
Share in cash dividend (25% x 480,000) ( 120,000)
Carrying value – December 31 1,900,000
Problem 11-28 Answer D
Acquisition cost 2,500,000
Less: Book value of net assets acquired (30% x 5,000,000) 1,500,000
Excess of cost over book value 1,000,000
Less: Amount attributable to undervaluation of land (30% x 2,000,000) 600,000
Goodwill 400,000
149
Acquisition cost 2,500,000
Add: Share in net income (30% x 1,000,000) 300,000
Balance, December 31 2,800,000
The excess of cost attributable to the land is not amortized because the land is
nondepreciable. The goodwill is not amortized.
Problem 11-29 Answer B
Acquisition cost – January 1 1,000,000
Acquisition cost – December 31 3,000,000
Total cost 4,000,000
Share in net income (10% x 8,000,000) 800,000
Carrying value 4,800,000
Problem 11-30 Answer C
Investment income in 2008 (30% x 6,500,000) 1,950,000
Investment income in 2007 (10% x 6,000,000) 600,000
Less: Dividend income recorded in 2006 (10% x 2,000,000) 200,000
Understatement of income 400,000
Investment in associate 400,000
Retained earnings 400,000
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