Question

On 1/1/2013, Company A acquired 30% of the outstanding common stock of Company B, for $100,000 cash. Company A now has the ability to exercise significant influence with the 30% of ownership. On acquisition date, Company B reports Total Assets at $300,000 and Total Liabilities at $50,000. Any excess of the cost over book value was attributed to a building that has a remaining useful life of 5 years. Company B reports income of $30,000 and dividends of $10,000 for year 2013; the income is $40,000 and dividends are $20,000 for year 2014. Present clear steps to compute the balance of A's Investment in B account as of 12/31/2014.

Answer 1

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Consideration Paid for 30%		$          100,000
Implied Fair vallue	$100,000/30%	$          333,333
Less: Book Value	$300,000-$50,000	$       (250,000)	Life	Amoritzation
Allocated to Building		$            83,333	5 Years	$          16,666.67
Consideration Paid for 30%		$          100,000
Add: Income for 2013	$30,000*30%	$              9,000
Less: Amortization	$16,667*30%	$            (5,000)
Less: Dividend for 2013	$10,000*30%	$            (3,000)
Balance as on 31st Dec 2013		$          101,000
Add: Income for 2014	$40,000*30%	$            12,000
Less: Amortization	$16,667*30%	$            (5,000)
Less: Dividend for 2014	$20,000*30%	$            (6,000)
Balance as on 31st Dec 2014		$          102,000