Question

At the start of the current year, SBC Corp. purchased 25% of Sky Tech Inc. for $46 million. At the time of purchase, the carrying value of Sky Tech's net assets was $62 million. The fair value of Sky Tech's depreciable assets was $10 million in excess of their book value. For this year, Sky Tech reported a net income of $62 million and declared and paid $10 million in dividends. The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is: Multiple Choice a. $2.5 million. b. $10 million. c. $18 million. d. None of these answer choices are correct.

Answer 1

Answer:

total amount of additional depreciation = $2.5 million

so correct option is a. $2.5 million

Explanation:

given data

purchased  25% = $46 million

net assets = $62 million

depreciable assets = $10 million

net income = $62 million  

dividends = $10 million

to find out

total amount of additional depreciation to be recognized by SBC over the remaining life of the assets

solution

we get here total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is

total amount of additional depreciation = $10 million × 25%

total amount of additional depreciation = $10 million × 0.25

total amount of additional depreciation = $2.5 million

so correct option is a. $2.5 million