Answer:
The correct option is D) $127,000.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:
                                           Book  Value        Fair Value
Current assets                      $120,000          $120,000
Land                                           72,000           192,000
Building (20yr life)                  240,000           268,000
Equipment (10yr life)               540,000            516,000
Current Liabilities                      24,000             24,000
Long-term Liabilities                120,000           120,000
Common Stock                       228,000
Additional Paid-in Capital       384,000
Retained Earnings                   216,000
Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.
In Cale's accounting records, what amount would appear on December 31, 2012 for equity in subsidiary earnings?
A) $ 77,000.
B) $ 79,000.
C) $125,000.
D) $127,000.
E) $ 81,800.
The explanation of the answer is now provided as follows:
Total amortization of allocations for 2012 = ((Building fair value – Building book value) / 20 year) + ((Equipment fair value - Equipment book value) / 10 years) = (($268,000 - $240,000) / 20) + (($516,000 - $540,000) / 10) = -$1,000
Amount for equity in subsidiary earnings on December 31, 2012 = Kaltop earned net income for 2012 - Total amortization of allocations for 2012 = $126,000 - (-$1,000) = $126,000 + $1,000 = $127,000
The amount that would appear on December 31, 2012 for equity in subsidiary earnings is $127,000. Therefore, the correct option is D) $127,000.