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CH1 Solutions - Answers to Problems 1 D 2 B 3 C 4 B 5 D 6 A...

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Answers to Problems 1. D 2. B 3. C 4. B 5. D 6. A Acquisition price ............................................................................. $1,600,000 Equity income ($560,000 × 40%) .................................................... 224,000 Dividends (50,000 shares × $2.00) .................................................. (100,000 ) Investment in Harrison Corporation as of December 31 .............. $1,724,000 7. A Acquisition price ....................................................... $700,000 Income accruals: 2010—$170,000 × 20% ................. 34,000 2011—$210,000 × 20% ................ 42,000 Amortization (see below): 2010 ................................ (10,000) Amortization: 2011 .................................................... (10,000) Dividends: 2010—$70,000 × 20% ............................. (14,000) 2011—$70,000 × 20% .............................. (14,000 ) Investment in Bremm, December 31, 2011 .............. $728,000 Acquisition price ....................................................... $700,000 Bremm’s net assets acquired ($3,000,000 × 20%) .. (600,000 ) Excess cost to patent ................................................ $100,000 Annual amortization (10 year life) ........................... $10,000 8. B Purchase price of Baskett stock .................... $500,000 Book value of Baskett ($900,000 × 40%) ........ (360,000 ) Cost in excess of book value .................... $140,000 Life Annual Payment identified with undervalued ............ Amortization Building ($140,000 × 40%) ......................... 56,000 7 yrs. $8,000 Trademark ($210,000 × 40%) ..................... 84,000 10 yrs. 8,400 Total ................................................................. $ -0- $16,400 Cost of investment .......................................................... $500,000
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Basic income accrual ($90,000 × 40%) .................... 36,000 Amortization (above) ................................................. (16,400) Dividend collected ($30,000 × 40%) ........................ (12,000 ) Investment in Baskett ..................................................... $507,600 9. D The 2010 purchase is reported using the equity method. Purchase price of Goldman stock .................................................. $600,000
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Book value of Goldman stock ($1,200,000 × 40%) ........................ (480,000 ) Goodwill ........................................................................................... $120,000 Life of goodwill ................................................................................ indefinite Annual amortization ........................................................................ (-0- ) Cost on January 1, 2010 ................................................................. $600,000 2010 Income accrued ($140,000 x 40%)