ch02_hw - Chapter 2 1 Chapter 2 STOCK INVESTMENTS -...

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Chapter 2 1 Chapter 2 STOCK INVESTMENTS — INVESTOR ACCOUNTING AND REPORTING SOLUTIONS TO EXERCISES Solution E2-1 1 d 2 c 3 c 4 d 5 b Solution E2-2 [AICPA adapted] 1 d 2 b 3 d 4 b Grade’s investment is reported at its $300,000 cost because the equity method is not appropriate and because Grade’s share of Medium’s income exceeds dividends received since acquisition [($260,000 × 15%) > $20,000]. 5 c Dividends received from Zafacon for the two years were $10,500 ($70,000 × 15%), but only $9,000 (15% of Zafacon’s income of $60,000 for the two years) is shown on Torquel’s income statement as dividend income from the Zafacon investment. The remaining $1,500 reduces the investment account balance. 6 c [$50,000 + $150,000 + ($300,000 × 10%)] 7 a 8 d Investment balance January 2 $250,000 Add: Income from Pod ($100,000 × 30%) 30,000 Investment in Pod December 31 $280,000 1
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2 Stock Investments — Investor Accounting and Reporting Solution E2-5 1 Income from Oakey Share of Oakey’s reported income ($800,000 × 30%) $ 240,000 Less: Excess allocated to inventory (100,000) Less: Depreciation of excess allocated to building ($200,000/4 years) (50,000 ) Income from Oakey $ 90,000 2 Investment account balance at December 31 Cost of investment in Oakey $2,000,000 Add: Income from Oakey 90,000 Less: Dividends (60,000 ) Investment in Oakey December 31 $2,030,000 Alternative solution: Underlying equity in Oakey at January 1 ($1,500,000/.3) $5,000,000 Income less dividends 600,000 Underlying equity December 31 5,600,000 Interest owned 30 % Book value of interest owned December 31 1,680,000 Add: Unamortized excess 350,000 Investment in Oakey December 31 $2,030,000 Solution E2-7 1 a Dividends received from Bennett ($120,000 × 15%) $ 18,000 Share of income since acquisition of interest 2006 ($20,000 × 15%) (3,000) 2007 ($80,000 × 15%) (12,000 ) Excess dividends received over share of income $ 3,000 Investment in Bennett January 3, 2006 $ 50,000 Less: Excess dividends received over share of income (3,000 ) Investment in Bennett December 31, 2007 $ 47,000 2 b Cost of 10,000 of 40,000 shares outstanding $1,400,000 Book value of 25% interest acquired ($4,000,000 stockholders’ equity at December 31, 2006 + $1,400,000 from additional stock issuance) × 25% 1,350,000 Excess cost over book value acquired (goodwill) $ 50,000 3 d The investment in Monroe balance remains at the original cost. 4 c 2
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Chapter 2 3 Income before extraordinary item $ 200,000 Percent owned 40 % Income from Krazy Products $ 80,000 Solution E2-10 Book Value of Tree’s Net Assets at October 1, 2006: Current Assets $ 250,000 Plant Assets - Net $1,550,000 Current Liabilities $( 200,000) $1,600,000 Arbor’s percent
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This homework help was uploaded on 04/05/2008 for the course ACCT 401 taught by Professor Schoderbek during the Spring '08 term at Rutgers.

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ch02_hw - Chapter 2 1 Chapter 2 STOCK INVESTMENTS -...

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