Question

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2012. On that date, Paar's equipment (10-year life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2014, Paar has equipment with a book value of $294,000 but a fair value of $445,200. Kimmel has equipment with a book value of $190,400 but a fair value of $357,000. What is the consolidated balance for the Equipment account as of December 31, 2014?$612,600.$802,200.$574,000.$484,400.

Answer 1

Answer: Option (C) is correct.

Explanation:

Given that,

On January 1, 2012

Paar's equipment (10-year life) has a book value(A) = $420,000

Fair value(B) = $520,000

and

Kimmel has equipment (10-year life) with a book value(C) = $272,000

Fair value(D) = $400,000

On December 31, 2014

Paar has equipment with a book value(E) = $294,000

Fair value(F) = $445,200

and

Kimmel has equipment (10-year life) with a book value(G) = $190,400

Fair value(H) = $357,000

Goodwill recognized by Paar corporation on Jan 1, 2012 = $400,000 - $272,000

= $128,000

Goodwill Amortized = $\frac{128,000}{10} \times3$

                                 = $38,400

Consolidated balance for the Equipment account as of December 31, 2014:

= E + G + Goodwill recognized by Paar corporation - Goodwill Amortized

= $294,000 + $190,400 + $128,000 - $38,400

= $574,000