Question

Assume an investee has the following financial statement information for the three years ending December 31, 2013:(At December 31) 2011 2012 2013Current assets $310,500 $416,550 $428,205Tangible fixed assets 844,500 861,450 992,595Intangible assets 75,000 67,500 60,000Total assets $1,230,000 $1,345,500 $1,480,800Current liabilities $150,000 $165,000 $181,500Noncurrent liabilities 330,000 363,000 399,300Common stock 150,000 150,000 150,000Additional paid-in capital 150,000 150,000 150,000Retained earnings 450,000 517,500 600,000Total liabilities and equity $1,230,000 $1,345,500 $1,480,800(At December 31) 2011 2012 2013Revenues $1,275,000 $1,380,000 $1,455,000Expenses 1,162,500 1,260,000 1,314,000Net income $112,500 $120,000 $141,000Dividends $37,500 $52,500 $58,500Review of pre-consolidation cost method (controlling investment in affiliate, fair value equals book value)Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "investment in investee" account in the investor company's preconsolidation balance sheet on December 31, 2013?A. $900,000B. $750,000C. $675,000D. $1,480,800Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's preconsolidation income statement for the year ended December 31, 2013?A. $141,000B. $82,500C. $58,500D. $112,500Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $150,000 higher than the investee's recorded book value. The tangible fixed assets had a remaining useful life of 10 years. In addition, the acquisition resulted in goodwill in the amount of $300,000 recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's pre-consolidation income statement for the year ended December 31, 2013?A. $126,000B. $82,500C. $67,500D. $141,000

Answer 1

Answer:

1. The balance in the "investment in investee" account in the investor company's preconsolidation balance sheet on December 31, 2013 is:

A. $900,000

2. The balance in the "income from investee" account in the investor company's preconsolidation income statement for the year ended December 31, 2013 is:

B. $82,500

3. The balance in the "income from investee" account in the investor company's pre-consolidation income statement for the year ended December 31, 2013 is:

D. $141,000

Explanation:

a) Data and Calculations:

Financial Statements for the three years ending December 31, 2013:

(At December 31)                            2011                  2012                2013

Current assets                           $310,500         $416,550         $428,205

Tangible fixed assets                  844,500           861,450           992,595

Intangible assets                           75,000             67,500             60,000

Total assets                            $1,230,000      $1,345,500       $1,480,800

Current liabilities                       $150,000         $165,000          $181,500

Noncurrent liabilities                  330,000           363,000          399,300

Common stock                            150,000           150,000           150,000

Additional paid-in capital            150,000           150,000           150,000

Retained earnings                     450,000            517,500         600,000

Total liabilities and equity     $1,230,000      $1,345,500     $1,480,800

(At December 31)       2011              2012              2013

Revenues            $1,275,000   $1,380,000    $1,455,000

Expenses               1,162,500     1,260,000        1,314,000

Net income            $112,500      $120,000         $141,000

Dividends               $37,500       $52,500          $58,500

Income retained for the current year                 $82,500

Retained income for year 2012                           517,500

Retained income for year 2013                       $600,000

Common stock                                                    150,000

Additional paid-in capital                                    150,000

Total equity                                                      $900,000