Question

Plastic Company purchased 100 percent of Spoon Company's voting common stock for $648,000 on January 1, 20X4. At that date, Spoon reported assets of $690,000 and liabilities of $230,000. The book values and fair values of Spoon's assets were equal except for land, which had a fair value $108,000 more than book value, and equipment, which had a fair value $80,000 more than book value. The remaining economic life of all depreciable assets at January 1,20x4, was five years. Spoon reported net income of $68,000 and paid dividends of $34,000 in 20X4
Required Compute the amount of investment income to be reported by Plastic for 20X4

Answer 1

Answer:

The amount of investment income is $52,000

Explanation:

Assets of $690,000

Liabilities of $230,000

Spoon's assets were equal except for land, which had a fair value $108,000 more than book value, and equipment, which had a fair value $80,000 more than book value.

Net income of $68,000

Paid dividends of $34,000

Proportionate share of reported income

Share in income from investment = 68000 × 100% = $68,000

Depreciation on equipment = (80,000 ÷ 5) = ($16,000)

Amount of investment income = $68,000 - $16,000

= $52,000