12) When the equity method is used to account for investments in common stock, w
ID: 2543845 • Letter: 1
Question
12) When the equity method is used to account for investments in common stock, which of the following affects the investor's reported income? Cash dividends from investee Yes Yes No No Excess amortization expense related to the purchase A) Yes No No Yes B) C) D) 13) Castonguay Co. issues 200,000 shares of $1 par value common stock, which is trading at $12 per share, to acquire 100% of Bakarich Co. in a business combination. Legal and consulting fees incurred in relationship to the combination are $110,000. Direct registration and issuance costs for the common stock are $35,000. What should be recorded in Castonguay's additional paid-in capital (APIC) for this business combination? A) $2,055,000 B) $2,090,000 C) $2,165,000 D) $2,200,000 E) $2,400,000Explanation / Answer
12) cash dividend does not affect the investor's reported income under equity method of consolidation where as excess amortization expense do.
Hence answer is "d"
13) additional paid-in capital means premium over par value of common stock hence additional paid-in capital is $2,200,000
Direct registration and issuance cost should be adjusted against the additional paid-in capital
Hence balance in Additional Paid-in capital is $2,165,000($2,200,000-$35,000)
Therefore answer is "c"
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