Question

On January 1, 2018, Green Corporation purchased 30% of the outstanding voting common stock of Gold Company for $300,850. The book value of the acquired shares was $275,400. 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 $125,600 and paid cash dividends of $25,050. What is the carrying value of Green's investment in Gold at December 31, 2018?

Answer 1

Answer:

Investment on Gold Company 305,565

Goodwill                                      20,360

Carrying value                          325,925

Explanation:

Because our current control, we have to use the equity valuation

the net income increased our investment and the cash dividends decreased.

beginning book value 275,400

+ 30% net income

30% of 125,600 = 37,680

-30% cash dividends

30% of 25,050 = (7,515)

ending Investment on Gold Company 305,565

The goodwill will be amortized over 5 years using straight-line method

Goodwill

300,850 - 275,400 = 25,450

life 5 years

25,450/5 = 5,090

amortization                (5,090)

Total                            20,360