In January 2008, Wilkinson, Inc., acquired 20 percent of the outstanding common
ID: 2351019 • Letter: I
Question
In January 2008, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant influence over Bremm. Bremm's assets on that date were recorded at $3,900,000 with liabilities of $900,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2008, Bremm reported net income of $170,000. In 2009, Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two years. What is the equity method balance of Wilkinson's Investment in Bremm, Inc., at December 31, 2009?a. $728,000.
b. $748,000.
c. $756,000.
d. $776,000.
need explanation plzz
Explanation / Answer
In January 2008, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant influence over Bremm. Bremm's assets on that date were recorded at $3,900,000 with liabilities of $900,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2008, Bremm reported net income of $170,000. In 2009, Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two years. What is the equity method balance of Wilkinson's Investment in Bremm, Inc., at December 31, 2009?
a. $728,000.
b. $748,000.
c. $756,000.
d. $776,000.
Amortization (below): 2008 (10,000)
Amortization: 2009 (10,000)
Dividends: 2008
$70,000 20% =(14,000)
2009
$70,000 20% =(14,000)
Investment in Bremm, December 31, 2009
Answer= $728,000
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Acquisition price $700,000
Bremms net assets acquired ($3,000,000x 20%)= (600,000)
Patent $100,000
Annual amortization (10 year life) $10,000
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