USE THE FOLLOWING INFORMATION FOR #15 - 17: Motown Corporation purchases shares
ID: 2425997 • Letter: U
Question
USE THE FOLLOWING INFORMATION FOR #15 - 17:
Motown Corporation purchases shares of Max Corporation giving them significant influence.
Purchase price of stock $ 480,000
Date of Purchase 1/1/20X7
Book Value of Max Corporation $ 1,440,000
Attributable to real property with a life of (years) 30
Percentage purchased 25%
CONSIDER THESE ADDITIONAL FACTS: Year end 12/31/20X7
Net income reported by Max Corp. $ 125,000
15.) What is the amount that Motown should recognize in net income for the period ending 12/31/X7? Write the amount and whether it is income or a loss.
16.) The journal entry required to record the impact of the undervalued property on the investment account has what impact on net income.
A. $ 4,000 decrease to net income
B. $ 4,000 increase to net income
C. $ 120,000 decrease to net income
D. No impact on net income
Additional Facts: Year ending 12/31/20X8
Net Loss reported by Max Corp. $ 80,000
17.) What amount of income or loss must be recorded on Motown's books for the year ending in 12/31/x8?
A. $ 80,000 loss
B. $ 80,000 income
C. $ 20,000 loss
D. No impact on net income
Explanation / Answer
15.) What is the amount that Motown should recognize in net income for the period ending 12/31/X7? Write the amount and whether it is income or a loss.
Ans) Net income should be recognised of = 125000*25%
= $31,250
It is an Income.
..
16.) The journal entry required to record the impact of the undervalued property on the investment account has what impact on net income.
ans)C. $ 120,000 decrease to net income
..
17.) What amount of income or loss must be recorded on Motown's books for the year ending in 12/31/x8?
Ans) 80000*25%
= 20,000 sholuld be recorded as a loss
So answer is Option-C:-$20,000 Loss
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