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Leno4ka [110]
3 years ago
14

On January 3, 2018, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided t

o use the equity method to account for this investment. At the time of the investment, Gainsville’s total stockholders’ equity was $8,000,000. Austin gathered the following information about Gainsville’s assets and liabilities: Book Value Fair Value Buildings (10-year life) $ 400,000 $ 500,000 Equipment (5-year life) 1,000,000 1,300,000 Franchises (8-year life) $ 0 $ 400,000 For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. For 2018, what is the total amount of excess amortization for Austin’s 25% investment in Gainsville?
Business
1 answer:
monitta3 years ago
3 0

Answer:

The total amount of excess amortization for Austin’s 25% investment in Gainsville is $30,000.

Explanation:

total proportions from building, equipment and franchises

= building proportion over 10 years + equipment proportion over 5 years + franchises proportion over 8 years

= ($ 500,000 - $ 400,000)/(10) + (1,300,000 - 1,000,000)/(5) + ($ 400,000-$0)/(8)

= $100,000/10 + $300,000/5 + $400,000/8

= $10,000 + $60,000 + $50,000

=$120,000

Excess Amortization = 25%(total proportions from building, equipment and franchises)

                                  = 25%($120,000)

                                  = $30,000

Therefore, the total amount of excess amortization for Austin’s 25% investment in Gainsville is $30,000.

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Answer:

Total assets turnover = 5.5

Equity multiplier = 1.55

Explanation:

The return on assets (ROA = 11%) is defined as the profit margin (2%) multiplied by the total assets turnover (TAT):

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The return on equity (ROE = 17%) is defined as the product of the return on assets (ROA = 11%) by the equity multiplier (EM):

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The company's total assets turnover is 5.5

The firm's equity multiplier is 1.55

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Explanation:

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Answer:

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