Question

On January 1, 2007, Firewire Company acquired 40 percent of Browser Company's common stock. For this acquisition, Firewire paid $45,000 above book value. The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition. During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000, respectively. Firewire reported a balance in its investment account of $230,000 on December 31, 2008. It uses the equity method in accounting for this investment.

7. Based on the preceding information, what is the annual amount of amortization of differential over the ten year period?
A. $0
B. $1,800
C. $4,500
D. $8,500

*I know the answer is $4500 but if you can please show computations for that answer.

8. Based on the preceding information, during 2007, Firewire will report:
A. an increase in the investment account balance of $15,500.
B. a decrease in the investment account balance of $20,000.
C. an increase in the investment account balance of $36,000.
D. a decrease in the investment account balance of $31,500.

*I know the answer is A but if you can please show computations for that answer.

9. Based on the preceding information, during 2008, Firewire will report:
A. an increase in the investment account balance of $8,000.
B. a decrease in the investment account balance of $15,500.
C. an increase in the investment account balance of $20,000.
D. a decrease in the investment account balance of $8,500.

*I know the answer is D but if you can please show computations for that answer.

10. Based on the information provided, what would be the amount paid by Firewire for this acquisition?
A. $254,000
B. $223,000
C. $230,000
D. $174,000

*I know the answer is B but if you can please show computations for that answer.

Denver Corporation owns 25 percent of the voting shares of Alamos Corporation. In 2008, Alamos reported net income of $120,000 and paid dividends of $30,000. Denver uses the equity method to account for this investment. Denver reported taxable income of $160,000 on its separate operations and has an effective tax rate of 40 percent. There is an 80 percent exemption on intercompany dividends.

15. Based on the preceding information, income tax expense for Denver for the year 2008 will be:
A. $67,000
B. $64,600
C. $64,000
D. $66,400

16. Based on the preceding information, income taxes payable for Denver for the year 2008 will be:
A. $67,000
B. $64,600
C. $64,000
D. $76,000

Denver Corporation owns 25 percent of the voting shares of Alamos Corporation. In 2008, Alamos reported net income of $120,000 and paid dividends of $30,000. Denver uses the equity method to account for this investment. Denver reported taxable income of $160,000 on its separate operations and has an effective tax rate of 40 percent. There is an 80 percent exemption on intercompany dividends.

15. Based on the preceding information, income tax expense for Denver for the year 2008 will be:
A. $67,000
B. $64,600
C. $64,000
D. $66,400

*I know the answer is $66400 but if you can please show computations for that answer.

16. Based on the preceding information, income taxes payable for Denver for the year 2008 will be:
A. $67,000
B. $64,600
C. $64,000
D. $76,000

*I know the answer is $64600 but if you can please show computations for that answer.

Answer 1

| Ammual amount o Armertigatiom Cour QAqwithom. 45000 Remaining Life TO P $4500 2007: Ner fmcorone Browser $90000 Lena; Dividend paid $(40000) $ 50000 Fire wino where 40% 20000 Leva; Amortized in 2007 (4500) 4mweax in Amvermeny $ 15500 2008. Ner Amiarme Browser $ 50000 Lena: Dividend paid $ 60000 (10000) Fine wire there b a 40% (4000) Lega; Arm or lined in 2008 (9500) Decrease in Amyermount – $(8500 Amoumr Paid by Firewire Balance in Amvear noyat Account $230,000 am Lead Amurane in Amvejiment (15500) Add: Decrease im Anvestment 8500 Amount paid for aquidihim $ 223000V

Am come Tax Expeconde for demyer Alamos Ner Amiome = $120000 the best onvey Lead' foremor 80-. $ 24000 Share of Denver 25% Thare of an come of Denver 86000 monem Alarmos_ 0009 to por Texable Trocome of Denver $160.000 Total 4mcome $ 166,000 Effective Tax Rate 40% 1 Ancome Tax Expende $66400 Acht

16. Ancome Tax Payable Nom exempt dividend 80000* = 30000 x 20% 2 $ 6000 over ? $ 8000x 25% = $1500 Taxable Amcome of Denver $160000 Nom exempt dividend Amcome $ 1800 8467,500 Effective Tax Rete 40-50 fome Tax Payable = $64600 v