On 1/1/22 Big Co acquired 60% of Little Co voting stock for $300,000; the fair value...

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On 1/1/22 Big Co acquired 60% of Little Co voting stock for $300,000; the fair value...

On 1/1/22 Big Co acquired 60% of Little Co voting stock for $300,000; the fair value of the non-controlling interest was $200,000 on that date.

Little's book value on that date was $350,000. Little had the following misvalued/unreported assets and liabilities:

Land: Undervalued by $5,000

Inventory, FIFO basis: Undervalued by $12,000

Bonds payable, 5-year life: Undervalued by $10,000

In-process R&D, not reported on Little's balance sheet, 2-year life: Worth $8,000

In 2022 Little reported earnings of $50,000 and paid dividends of $10,000

What is Little's "adjusted income" after taking into account the various differential amortizations?

business accounting

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Answer 1

Answer #1

Book value	350000

Land	5000
inventory	12000
Bonds payable	-10000
In process R&D	8000
	365000
Purchase price	300000
NCI	200000

Goodwill	135000
Goodwill Big Co	81000
Goodwill NCI	54000

Amortisation/interest differentail

Bonds	=excess of fairvalue over book value/useful life
	=-10000/5
	-2000

inprocess R&D	=excess of fairvalue over book value/useful lofe
	=8000/2
	4000

Differential mortisation	=4000-2000
	2000

Adjusted income
	=net income-differential amortisation
	=50000-2000
	48000

Share in income
Big Co	28800
NCI	19200

Investment Value
Initial investment	300000
Add: adjusted income	28800
Less: share of dividend	-6000
	322800

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Answer 2

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On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date...

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