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Fynjy0 [20]
3 years ago
13

On January 1, 2018, Como Company purchased 45% of the outstanding common shares of the Lite Company for $200,000. The net assets

of Lite Company totaled $400,000. The inventory had a book value of $100,000 and a fair value of $120,000. Excess cost attributable to inventory is written off in 2018. During 2018, Lite Company earned $200,000 and declared a dividend of $40,000 for the year.
The fair value of the Lite stock investment at the end of 2018 was $210,000. Which of the following amounts are correct assuming that Como elected to use the fair value option to account for the Lite investment?
a. $28,000 $210,000
b. $81,000 $263,000
c. $91,000 $273,000
d. $18,000 $210,000
Business
1 answer:
NeX [460]3 years ago
3 0

Answer: a. $28,000 $210,000

Explanation:

First column is income and second is Carrying value.

Carrying value is the fair value at year end = $210,000

Income = Dividend received + fair value adjustment

Fair value adjustment = Fair value - cost of shares

= 210,000 - 200,000

= $10,000

Dividend = 45% * 40,000

= $18,000

Income = 18,000 + 10,000

= $28,000

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