On January 1, 2018, P acquired all of S\'s outstanding stock for $680,000 cash.

ID: 2329874 • Letter: O

Question

On January 1, 2018, P acquired all of S's outstanding stock for $680,000 cash. At the date of acquisition, copyrights (with a 10-year remaining life) have a $450,000 book value but a fair value of $550,000. P company uses the equity method to account for its investment in S. Investment income is not included in P's Revenues.

Required:

a. As of December 31, 2018, what is the investment in S balance?

b. As of December 31, 2018, what is the consolidated copyright balance?

c. As of December 31, 2018, what is the consolidated Royalty Agreements balance?

d. As of December 31, 2018, what is the consolidated balance for goodwill?

e. For the year ending December 31, 2018, what is the consolidated net income?

P Company S Corporation Revenues $(700,000) $(400,000) Expenses 400,000 300,000 Investment Income Not given -0- Dividends declared 80,000 60,000 Retained Earnings, 1/1/18 (600,000) (200,000) Current Assets 400,000 500,000 Equipment 700,000 300,000 Copyrights 900,000 405,000 Royalty Agreements 600,000 1,000,000 Investment in S Not given -0- Liabilities (500,000) (1,380,000) Common Stock (600,000) ($20 par) (200,000) ($10 par) Additional Paid-in-Capital (150,000) (80,000)

Explanation / Answer

1. Investment in S Balance as of Dec 31, 2018

Less: Dividend income received from S

(It is assumed that dividend declared is a pre-acquisition income that is required to be adjusted against the purchasse price of the investment.)

2. Balance of Consolidated Copyright as of Dec 31, 2018

3. Consolidated Royalty Agreement balance as of Dec 31, 2018

4. Consolidated Balance of Goodwill as on Dec 31, 2018

5. Calculation of Consolidated Net income for the year ending Dec 31, 2018

Particulars $ Purchase price of outstanding stock of S 680,000

Less: Dividend income received from S

(It is assumed that dividend declared is a pre-acquisition income that is required to be adjusted against the purchasse price of the investment.)

(60,000) Investment in S Balance as of Dec 31, 2018 620,000

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On January 1, 2018, P acquired all of S\'s outstanding stock for $680,000 cash.

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