Chapter 3 Homework Davis acquires 100% of Ramos on January 1, 2009, Ramos will b
ID: 2339694 • Letter: C
Question
Chapter 3 Homework Davis acquires 100% of Ramos on January 1, 2009, Ramos will be operated as a separate subsidiary. Davis will use the equity method to account for its investment in Ramos. In 2013, Davis has net income of $400,000 and pays dividends of $100,000. Ramos has net income of $200,000 and pays dividends of $75,000. At acquisition date, Davis has a building with a book value of $3,000,000 and a fair value of $4,000,000. At that date, Ramos had a building witha book value of $800,000 and fair value of $900,000. Both buildings have a remaining useful life of 5 years (assume straight line depreciation). A+Dec. 3, 2013 Davis had B r ) , of 5000,000+FV a. Prepare consolidation worksheet "D" to reflect the necessary adjustment for dividendsof / b. How much are consolidated dividends for 2013 1. Prepare worksheet entry "A" at December 31, 2013 (assume there is no goodwill). How much is consolidated buildings at December 31, 2013 c. d.Explanation / Answer
C is not answered.Post separately.
a Prepare the consolidation worksheet D to reflect the necessary adjustment for Dividend:
Davis Net Income of $400000 and pays dividends of $100000.
Ramos Net Income of $200000 and pays dividends of $75000.
100000 dividend on 400000 Profit ie 25%.
Total Income of Davis =$400000 +$75000=$475000
So dividend =$475000 *.25 =$118750
b.How much are consolidated dividends of 2013:
Consolidated Dividends for 2013 is $118750.
Becuase dividend issued by Ramos is like income of Davis and its include in Ramos income statement.
d)how much is consolidated building at 12/31/2013.
At acquisition date Davis has a building = $3,000,000
At acquisition date Ramos has a buidling = $800,000
Useful life of 5 years
Straight line method
From 1/1/2009 to 12/31/2013 total 5 years completed. so end of 12/31/2013 value of Building is Zero.
Now,
At 12/31/2013,
Davis has BV building of $5000,000.
Ramos has BV building of $2000,000.
So this is the consolidated building at 12/31/2013.$ 70,00,000.
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