Question

value of Kinman’s net assets on that date was $460,000, although one of the company’s buildings, with a $74,200 carrying amount, was actually worth $118,450. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $105,000.
Kinman sold inventory with an original cost of $126,000 to Harper during 2014 at a price of $180,000. Harper still held $20,400 (transfer price) of this amount in inventory
Harper acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2014, for $243,700 in cash. The book value of Kinman’s net assets on that date was $460,000, although one of the company’s buildings, with a $74,200 carrying amount, was actually worth $118,450. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $105,000.
Kinman sold inventory with an original cost of $126,000 to Harper during 2014 at a price of $180,000. Harper still held $20,400 (transfer price) of this amount in inventory as of December 31, 2014. These goods are to be sold to outside parties during 2015.
Kinman reported a $50,600 net loss and a $28,300 other comprehensive loss for 2014, The company still manages to declare a $18,000 cash dividend during the year.
During 2015, Kinman reported a $57,800 net income and declared cash dividend of $20,000. It made additional inventory sales of $134,000 to Harper during the period. The original cost of the merchandise was $83,750. All but 30 percent of this inventory had been resold to outside parties by the end of the 2015 fiscal year.

Answer 1

One of the steps in solving this problem is this one:

As we know as shown above, the joournal entry for 2014 and 2015 will include the investment balance, increases and decreases to equity and intra-entity profits realized and deferred. Also the balance of the acquisition needs to be calculated.

Calculation of the book value of the purchase made as the book value of Company K times percent purchased:

400,000 * 0.40 = 160,000

Then, calculate the difference in the acquisition and the book value of the purchase:

210,000 - 160,000 = 50,000