CH1 Solutions

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

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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%) . ........................................ 56,000 2010 Dividend collected ($50,000 × 40%) . ..................................... (20,000)
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This note was uploaded on 11/10/2010 for the course ACCT 401 taught by Professor C.p.carter during the Fall '10 term at UMass Lowell.

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

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