On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company...
On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company for $370,700. On that date, Sales Company’s stockholders’ equity consisted of common stock, $108,900; other contributed capital, $43,800; and retained earnings, $137,700. Pert Company paid more than the book value of net assets acquired because the recorded cost of Sales Company’s land was significantly less than its fair value. During 2014 Sales Company earned $159,100 and declared and paid a $52,800 dividend.
Pert Company used the partial equity method to record its investment in Sales Company.
Assume that during 2015 Sales Company earned $183,900 and declared and paid a $52,800 dividend.
Homework Answers
| Calculation of Goodwill | ||
| Purchase price | $ 370,700 | |
| Less: Net assets | ||
| Common stock | $ 108,900 | |
| Contributed capital | $ 43,800 | |
| Retained earnings | $ 137,700 | $ 290,400 |
| Goodwill | $ 80,300 | |
| Value of Investments on 1st Jan 2014 | $ 370,700 | |
| Add: Pert's share in profit of Sales company | $ 135,235 | |
| 159100*85% | ||
| Less: Dividends declared | $ (44,880) | |
| 52800*85% | ||
| Value of Investments on 1st Jan 2015 | $ 461,055 | |
| Add: Pert's share in profit of Sales company | $ 156,315 | |
| =183900*85% | ||
| Less: Dividends declared | $ (44,880) | |
| 52800*85% | ||
| Value of Investments on 31st Dec 2015 | $ 572,490 |
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On January 1, 2014, Pert Company purchased 85% of the
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Exercise 4-7 On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company for $361,700. On that date, Sales Company's stockholders' equity consisted of common stock, $93,900; other contributed capital, $37,000; and retained earnings, $148,500. Pert Company paid more than the book value of net assets acquired because the recorded cost of Sales Company's land was significantly less than its fair value. During 2014 Sales Company earned $134,900 and declared and paid a $50,500 dividend....
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B)
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