Answer:
D. $708,000
Explanation:
Step 1: Calculate the Value in excess of Cost over book value for the acquistion
a. Shalina Purchased 40% or Evans outstanding stock for $600,000
b. Evan's net assets was $1,200,000 on that same January 1, 2017
To calculate the excess value
Evan's Net Assets $1,200,000
The Book value of Shalina's acquisition ( 40% x $1,200,000) $480,000
Subtract: The Cost of Acquisition by Shalina <u> ($600,000)</u>
Total = Excess of Cost over Book Value for Acquisition $120,000
This excess is Assigned to Goodwill $120,000
Calculate Goodwill Amortization
= Excess of Cost over book value- Goodwill = $0 (since all were assigned to Goodwill)
Step 2: Calculate the Investment of Shalina in Evan's Company as at 31st December, 2019
Investment Cost by Shalina $600,000
Portion of 2017 Income accrued to Shalina (40% of $140,000) $56,000
Subract: Shalina Portion of Dividend declared (40% of $50,000) ($20,000)
Portion of 2018 Income accrued to Shalina (40% of $140,000) $56,000
Subract: Shalina Portion of Dividend declared (40% of $50,000) ($20,000)
Portion of 2019 Income accrued to Shalina (40% of $140,000) $56,000
Subract: Shalina Portion of Dividend declared (40% of $50,000) <u>($20,000)</u>
Shalina's Investment in Evan as at 31st December, 2019 <u>$708,000</u>
<u>Note: </u>Since, Evans company declares the same profit of $140,000 and dividend of $50,000 yearly, it means Shalina's portion of investment should be calculated based on these same figures for the three years.
