In January 2015, Smith company acquired 20 percent of the outstanding common sto
ID: 2425322 • Letter: I
Question
In January 2015, Smith company acquired 20 percent of the outstanding common stock in Jones Company for $1,120,000. The book value of the acquired shares was $840,000. The excess of cost over book was attributed to an identifiable intangible asset that was undervalued on Jones's balance sheet and has a rmaining useful life of 10 years. For the year ending Decemer 31, 2015, Jones reported net income of $252,000 and paid cash dividends of $56,000 on common stock. What is the proper carrying value of Smith's investment in Jones at december 31, 2015? A. $1,080,800 B. $1,092,000 C. $1,131,200 D. $1,181,600
Explanation / Answer
The cost of common stock = $ 1,120,000
The share of common stcok = 20%
The company Net Income = $ 252,000 and out of which Dividend paid = $ 56,000.
The amount available for distribution = $ 252,000 - $ 56,000 = $ 196,000
The Smith Share = 20% = 20%*196,000 = $ 39,200
The carrying value of smith's investments in Jones = $ 1,120,000 - $ 39,200 = $ 1,080,800
Therefore the answer is A i.e. $ 1,080,800
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