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On January 1 2007, Wheeley Company issued common shares with a par value of $20,000 and a market value of $172,000 in exchange for 40 percent ownership of Twain Company. Balance sheet information reported by Twain on that date is given below:

Fair Value TWAIN COMPANY Balance Sheet January 1, 2007 Book Value Assets Cash and Receivables $100,000 Inventory (FIFO Basis)

Twain reported net income of $56,000 and paid dividends of $25,000 during the year. Wheeley uses the equity method of accounting. The estimated economic life of the patents held by Twain is 8 years. The buildings and equipment are expected to last 6 more years on average with zero salvage value.

22. Based on the information provided, differential assigned by Wheeley to inventory for the year is:
A. $0
B. $12,000
C. $4,800
D. $22,000

*I know the answer is $4800 but if you can please show computations for that answer.

23. Based on the information provided, what amount of differential assigned to buildings and equipment will be amortized for the year?
A. $0
B. $4,800
C. $2,000
D. $3,800

*I know the answer is $3800 but if you can please show computations for that answer.

24. Based on the information provided, what amount of differential assigned to patents will be amortized for the year?
A. $0
B. $4,800
C. $2,000
D. $3,800

*I know the answer is $2000 but if you can please show computations for that answer.

25. Based on the information provided, what amount of income will be reported by Wheeley from its investment in Twain for the year 2007?
A. $22,400
B. $11,800
C. $4,800
D. $12,400

*I know the answer is $11800 but if you can please show computations for that answer.

26. Based on the information provided, what will be the balance in the investment account on December 31, 2007 reported by Wheeley?
A. $172,000
B. $173,800
C. $183,800
D. $194,400

*I know the answer is $173800 but if you can please show computations for that answer.

On January 1, 2007, Rotor Corporation acquired 30 percent of Stator Company's stock for $150,000. On the acquisition date, Stator reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 15 years. During 2007 and 2008 Stator reported net income of $25,000 and $15,000 and paid dividends of $10,000 and $12,000, respectively. Rotor uses the equity method.

6. Based on the preceding information, had Rotor Corporation used the cost method, what would have been the balance in the investment account on Dec 31, 2008?
A. $150,000
B. $157,500
C. $153,400
D. $153,500

*I know the answer is $150,000 but if you can please show computations for that answer.

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Answer #1

(Fair Value- Book Value)* Share acquired

22. (100000-88000)*40%= 4,800

23. ((225000-168000)/6)*40%=3,800

24. (40000/8)*40%- 2,000

Remaining answers will also be provided shortly.

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