Franklin purchases 40 percent of Johnson Company on January 1 for $649,400. Alth

ID: 2414076 • Letter: F

Question

Franklin purchases 40 percent of Johnson Company on January 1 for $649,400. Although Franklin did not use it, this acquisition gave Franklin the ability to apply significant influence to Johnson's operating and financing policies. Johnson reports assets on that date of $1,557,000 with liabilities of $594,000. One building with a seven-year remaining life life is undervalued on Johnson's books by $238,000. Also, Johnson's book value for its trademark (10-year life) is undervalued by $422,500. During the year, Johnson reports net income of $92,000 while declaring dividends of $30,000. What is the Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31? Multiple Choice $674,200 $680,500 $657300. $643,700

Explanation / Answer

The Answer is “ $643,700 “

The Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31 $643,700

Particulars

Amount ($)

Add : Investment Purchase Price

649,400

Add : Net Income Accrued During the year [ 92,000 x 40% ]

36,800

Less: Annual Amortization of Building [ 238,000 x 0.40 ] / 7 Years

(13,600)

Less : Annual Amortization of Trademark [ 422,500 x 0.40] / 10Years

(16,900)

Less : Dividend Declared [ 30,000 x 0.40 ]

(12,000)

The Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31

$643,700