Question

On January 2, 2020, Warner Co. purchased 40% of Kyle Co.’s outstanding common stock. The carrying amount of Kyle's depreciable assets was $1,000,000 on January 2. Kyle's depreciable assets had an original useful life of 10 years and a remaining useful life of 5 years. Warner recognized $60,000 depreciation adjustment for the current year ending December 31 related to its investment in Kyle due to the excess of fair value over book value on these assets. What was the fair value of Kyle's depreciable assets on January 2, 2020?

Answer 1

Answer:

The fair value of Kyle's depreciable assets on January 2, 2020 was $1,750,000

Explanation:

According to the given data we need to calculate first the following:

Warner Co. share of difference = $60,000 * 5years

= $300,000

Therefore, Because Warner Co. holds 40% of Kyle, Kyle Co.'s depreciable asset = $300,000 ÷ 40% = $750,000

Hence, in order to calculate the fair value of Kyle's depreciable asset on Jan 2, 2020 we would require to make the following calculation:

Fair value of Kyle's depreciable asset on Jan 2, 2020= $1,000,000 + $750,000

Fair value of Kyle's depreciable asset on Jan 2, 2020 = $1,750,000