Question

On January 1, 2018, Green Corporation purchased 34% of the outstanding voting common stock of Gold Company for $300,850. The book value of the acquired shares was $275,200. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2018, Gold reported net income of $125,150 and paid cash dividends of $25,450. What is the carrying value of Green's investment in Gold at December 31, 2018?

Answer 1

Answer:

Total Green's Investment 329,607.8

Explanation:

Book Value 275,200

Goodwill 25,650

First we calculate the goodwill, which will be amortize over 5 years

$\frac{goodwill}{useful \: life} = amortization \: per \: year$

Amortization of Goodwill 25,650/5 = 5,130

Goodwill at December 31th 20,520

Next we use proportional equity to adjust the Green's book value Our proportion is 34%

Book Value 275,200

+ 34% of net income 125,120 = 42,540.8

-34% of cash dividends 25,450 = (8,653)

Book Value at December 31th 309,087.8

Book Value at December 31th 309,087.8

Goodwill at December 31th 20,520

Total Green's Investment 329,607.8