Pacific Corporation acquired all of the voting stock of Seagate Inc. at an acqui
ID: 2465711 • Letter: P
Question
Pacific Corporation acquired all of the voting stock of Seagate Inc. at an acquisition cost of $500 million on January 1, 2017. Seagate’s book value at the date of acquisition was $90 million, consisting of $10 million in capital stock, $85 million in retained earnings, and $5 million in treasury stock. Seagate’s identifiable net assets were revalued as follows: Fair Value Book Value Plant assets, net $10,000,000 $25,000,000 10-year life Brand names 2,000,000 0 Indefinite life Customer lists 1,500,000 0 3-year life During 2017, Seagate reported net income of $6,000,000 and declared and paid dividends of $1,000,000. Seagate does not report any other comprehensive income. The brand names were impaired by $200,000. Pacific reports its investment in Seagate on its own books using the complete equity method.
Required Calculate equity in net income for 2017, reported on Pacific’s books.
Explanation / Answer
Net Income Reported by seagate 6,000,000 Less: Impairment loss - 200,000 Dividend paid - 1,000,000 share in net income of seagatee 4,800,000 share in dividend income 1,000,000 equity in net income 5,800,000
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