152 17 million gain before taxes 47 proceeds 30

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Unformatted text preview: nvestments. The second adjustment indicates the recognition (realization) of that accumulated loss. This occurred because Kirby either wrote off the investment or sold it at the end of the year. 152. $1.7 million gain before taxes ($4.7 proceeds - $3.0 securities). Taxes would be $0.68 million ($1.7 million x .4 tax rate). Thus, the after-tax gain would be $1.02 million. 153. $4.833 million unrealized gain. At a 40% tax rate, the after-tax unrealized gain is 60% of the total. Therefore, $2.9 million is 60% of the total. Total is $2.9/.6 = $4.833 million. 154. 155. 156. ($64 x 400) - $24,600 = $1,000| 157. 158. 159. $130,000 (i.e., $3,703,000 cash flow - $3,573,000 maturity). 160. Arctic would report a $91,000 gain (gross of tax). This is the difference between the amortized cost of the investments ($3,105,000) and their fair value ($3,196,000), or $91,000. The transaction would be recorded as follows: 161. 162. 163. 164. 165. The Silverwood Company should follow the equity method of accounting for this investment. Because Silverwood owns 35% of the voting stock of Yellowstone, the presumption of significant influence exists; 35% of Yellowstone's net income for one-half year would be added to Silverwood's Investment account balance. Adjustments would also be made, if appropriate, to reflect additional depreciation. The investment account's adjusted balance would be reported as a long-term investment in the asset section of the balance sheet. Thirty-five percent of Yellowstone's net income, minus any additional depreciation, would be reflected in Silverwood's income statement. Since the equity method is appropriate for this investment, the dividends would not be included in income, but would be deducted from the Investment account. 166. 167. 168. First note that, at purchase, fair value of Webb is $5,000,000/50% = $10,000,000, implying total goodwill of $10,000,000 - $8,000,000 = $2,000,000. All of the price differential is attributable to goodwill, because fair value of identifiable net assets equals...
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