Question

On January 1, 2018, Morey, Inc., exchanged $182,250 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam's assets and liabilities approximated their fair values On June 30, 2018, Morey paid $563,500 for an additional 70 percent of Amsterdam, thus increasing its overall ownership to 95 percent. The price paid for the 70 percent acquisition was proportionate to Amsterdam's total fax value. At June 30, the carrying amounts of Amsterdam's assets and liabilities approximated their fair values. Any remaining excess fair value was attributed to goodwill Amsterdam reports the following amounts at December 31, 2018 (credit balances shown in parentheses) Revenues Expenses Retained earnings, January 1 Dividends declared, October 1 Common stock $ (279, 180) 201, (193,800) 20, eee (500, eee)

Answer 1

Answer a Acquisition date fair value Amsterdam fair value implied by price paid by Morey = $ 563,500 / 70% $ 805,000 $ 182,250 b Revaluation Gain Jan 1, equity investment in Amsterdam book value add: 25% income for 1st 6 months Revenues 279000 - Expenses 201000 Net Income 78000 (78000*25%*6/12) $ 9,750 June 30, Investment book value June 30 Fair value of invsetment (805000*25%) Gain on ravaluation to fair value $ $ $ 192,000 201,250 9,250 $ 805,000 c Goodwill at Dec 31 June 30, Fair value of Amsterdam less: June 30, Book value: Common stock 500000 + Retained earnings 193800 + Profit for 6 months (78000*6/12) 39000 Excess fair value (allocation to goodwill) $ $ 732,800 72,200

d Non controlling interest 1) Jun 30, 5% fair value balance (805000*5%) add: June 30 to Dec 31, 5% net income (78000*6/12*5%) less: 5% dividend (20000*5%) 2) Dec 31, non controlling interest $ $ $ $ 40,250 1,950 (1,000) 41,200