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Ch3 HW - Q31 a)SubsidiaryIncome=30,000 Investment=425,000...

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Q3-1 Q3-2 Date alignment means adjusting the investment account to reflect the same date as the subsidiary equity a) Simple equity method - equity accounts reflect beginning-of-year balances, yet the investment accoun b) Sophisticated equity method - equity accounts reflect beginning-of-year balances, yet the the investme c) Cost method - equity accounts reflect beginning-of-year balances, yet the investment account reflects  E3-11 Calculation of book value of Subsidiary: Fair value at purchase  $1,062,500  Add $200,000 increase in Barker retained earnings  $200,000  Deduct amortization of excess (5 years x $10,000 per year)  $(50,000) Book value balance  $1,212,500  Fair value of Barker Company, December 31, 20X5 (given) Since the adjusted (for acquisition) book value ($1,212,500) exceeds the fair value balance ($1,000,000) Impairment loss: Fair value of Barker Company  $1,000,000  Fair value of Barker Company identifiable assets  $900,000  Estimated goodwill  $100,000  Existing goodwill  $262,500  Impairment loss  $162,500  a) Subsidiary Income = 30,000 Investment = 425,000
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