Solution to Chapter 2 Sample Quiz

# Solution to Chapter 2 Sample Quiz - Investment cost...

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Solution to Chapter 2 Sample Quiz 1 C 2 C 3 D 4 A Total stockholders’ equity \$38,000,000 Less: preferred equity 2,000,000 Equals: common equity 36,000,000 x Brolga’s percentage 30% Book value of Brolga investment 10,800,000 5 B 6 B Income and dividends are not added or deducted from the investment account under the cost method unless liquidating dividends are received 7 D Initial Investment in Liddy \$120,000 adjustments: 2007: 15% x (\$12,000-\$10,000)= 300 2008: 15% x (\$15,000-\$10,000)= 750 2009: 15% x (\$25,000-\$10,000)= ,250 Investment balance at 12/31/2009: \$123,300 8 C Jacana’s separate income \$120,000 Dividend income from Lilypad equals \$20,000 x 25% = 5,000 Jacana’s net income = \$125,000 9 A Pelican’s share of income Equals \$600,000 x 30% = \$180,000 Pelican’s share of dividends = \$100,000 x 30% (30,000) Increase in investment account \$ 150,000 \$ 10 B

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Part II
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Unformatted text preview: .. Investment cost \$200,000 Book value acquired: \$280,000 x 40% = 112,000 Excess cost over book value acquired = 88,000 Schedule to Allocate Cost-Book Value Differentials Fair value- Book value Interest Amount Assigned Inventories \$20,000 40% \$ 8,000 Equipment 60,000 40% 24,000 Notes payable 20,000 40% 8,000 Allocated to specific assets \$40,000 Remainder allocated to goodwill 48,000 \$88,000 Part III. Sandpiper’s share of Shore net income (\$18,000 x 30%) \$5,400 Add: Overvalued accounts receivable collected in 2009 600 Add: Undervalued accounts payable paid in 2009 300 Less: Undervalued inventories sold in 2009 (2,400) Less: Depreciation on building undervaluation \$3,600/6 (600) Less: Amortization on patent \$3,200/8 years (400 ) Income from Shore \$2,900...
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Solution to Chapter 2 Sample Quiz - Investment cost...

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