Question

Attendance no. Question 2 Stilt Corporation purchased a 40% interest in the common stock of Shallow Company for $2,660,000 on January 1, 2013, when the book value of Shallow's net equity was $6,000,000. Shallow's book values equaled their fair values except for the following items: Book Value Inventories $450,000 Land 100,000 Building-net 400,000 Equipment-net 350,000 Fair Value $500,000 450,000 200,000 400,000 Difference $ 50,000 350,000 (200,000) 50,000 Required: 1. Prepare a schedule to allocate any excess purchase cost to identifiable assets and goodwill 2- What are the investment in associate company and income from associate company that Stilt Corporation has to report in its 2013 financial statements assuming that inventory was sold during 2013, the remaining useful life for building and equipment was 10 years and that Shallow Company reported net income by $300,000 and distributed dividends by $100,000,

Answer 1

Solution as per Below Image:

Requirement 1 Schedule Showing Allocation Excess Purchase cost Amount in $ 260000 250000 Particulars Excess Purchase cost [(2660000)-(6000000 X 40%) Excess Purchase Cost allocated to Asset Write Up: Inventories Land Building Equipment 50000 350000 (200000) 50000 Excess Purchase Cost Allocated to Goodwill 10000 Requirement 2 Meaning of Investment in Associate Company: Investment in an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Significant influence is the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies. Following Disclosures need to be Made by Stilt Corporation in its 2013 Financial Statement Particulars Amount Investment in Shallow Company $2,660,000 Add: Share in Net Income of Shallow Company(300000 X 40%) $120,000 Less: Share in Cash Dividend 100000 x 40%) ($40,000) Net Investment $2,740,000