Problem 22-11 On Jan ary 1, 2017, Cheyenne Inc. paid $692,000 for 10,000 shares
ID: 2588325 • Letter: P
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Problem 22-11 On Jan ary 1, 2017, Cheyenne Inc. paid $692,000 for 10,000 shares of Ayayai Company's voting c mon stock, which was a 10% interest l Avaya At that date, the net assets of Ayayai totaled $5,957,000. The fair values of all of Ayayai's identifiable assets and liabilities were equal to their book values. Cheyenne does not have the ability to exercise significant influence over the operating and financial polices of Ayaya. Cheyenne received dividends of S .50 per share from Ayayar on October 1, 2017. Ayayai reported net income of $550,000 for the year ended December 31, 2017 On July 1, 2018, Cheyenne paid $2.303,000 for 30,000 additional shares of Ayayai Company's voting common stock which represents a 30% investment in Avaya. The fair values of all of Ayayai's identifiable assets net of liabilities were equal to their book values of $6,512,000. As a result of this transaction, Cheyenne has the ability to exercise significant influence over the operating and financial policies of Ayayai. Cheyenne received dividends of $2.10 per share from Ayayai on April , 2018, and $2.70 per share on October 1, 2018. Ayayai reported net income of $656,000 for the year ended December 31, 2018, and $349,000 for the 6 months ended December 31, 2018. (For both purchases, assume any excess of cost over book value is due to goodwill.) (a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2017, that Cheyenne should report from its investment in Ayayal in its income statement issued in March 2018 CHEYENNE INC. Schedule of Income or Loss from Investment (b) During March 2019, Cheyenne issues comparative financial statements for 2017 and 2018. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2017 and 2018, that Cheyenne should report from its investment in Ayayai. CHEYENNE INC Schedule of Income or Loss from Investment 2018 2017Explanation / Answer
% of Holding No of Shares Value Cost Per Share Cl Balance as on 31/12/2018 10% 10,000 692,000 69.20 Ayayal net Assets 100% 100,000 5,957,000 59.57 Since Cheyenne is holding 10% and Cheyenne does not have any influence on the management of the company , the dividend recevied will be charged to P&L account a) Schedule of income from Investment Dividend Received 15,000 b) % of Holding No of Shares Value Cost Per Share Cl Balance as on 31/12/2018 10% 10,000 692,000 69.20 01/07/2018 30% 30,000 2,303,000 76.77 40% 40,000 2,995,000 74.88 Add: Income for six month=40%*349000 139,600 Less: dividend received after 30% additional acquisition -108,000 Balance as on 31/03/2019 40% 40000 3,026,600 75.67 Schedule of income from Investment 2018 2,017 Dividend Received 21,000 15,000
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