The fair value of Cameron Inc.'s depreciable assets exceeds their book value by $50 million
The fair value of Cameron Inc.'s depreciable assets exceeds their book value by $50 million. The assets have an average remaining useful le of 15 years and are being depreciated by the straight-line method. Lake Industries buys 30% of Cameron's common shares. How will the situation described affect Lakes investment revenue?
It will not make a difference
Lake will reduce the investment revenue by $3.3 million per year,
Lake will increase the investment revenue by $1 milion per year.
Lake will reduce the investment revenue by $1 million per year.
Lake will increase the investment revenue by $3.3 million per year.
Homework Answers
Option - 'D'; Lake will reduce the investment revenue by $1 million per year
The investment revenue would be reduced by negative income effect of the 'extra depriciation' the higher fair value would case. This would equal 30% * $50 million / 15 years
= $1 million each year
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The fair value of Cameron Inc.'s depreciable assets exceeds their book value by $50 million
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On January 1, 2018, Cameron Inc. bought 20% of the outstanding
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the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $800 million. The
difference was attributable to the fair value of Lake's buildings
and its land exceeding book value, each accounting for one-half of
the difference. Lake’s net income for the year...
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On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction...
On January 1, 2021, Cameron Inc. bought 20%
of the outstanding common stock of Lake Construction Company for
$240 million cash, giving Cameron the ability to exercise
significant influence over Lake’s operations. At the date of
acquisition of the stock, Lake's net assets had a fair value of
$600 million. Its book value was $500 million. The difference was
attributable to the fair value of Lake's buildings and its land
exceeding book value, each accounting for one-half of the
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On January 1, 2021, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $260 million cash,
giving Cameron the ability to exercise significant influence over
Lake’s operations. At the date of acquisition of the stock, Lake's
net assets had a fair value of $900 million. Its book value was
$850 million. The difference was attributable to the fair value of
Lake's buildings and its land exceeding book value, each accounting
for one-half of the difference....
On January 1, 2021, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $240 million cash, giving Cameron the ability to exercise significant influence over Lake's operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $600 million. Its book value was $500 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference....
Need help with Part 2.
On January 1, 2018, Cameron Inc. bought 20% of the outstanding
common stock of Lake Construction Company for $380 million cash. At
the date of acquisition of the stock, Lake's net assets had a fair
value of $900 million. Their book value was $800 million. The
difference was attributable to the fair value of Lake's buildings
and its land exceeding book value, each accounting for one-half of
the difference. Lake’s net income for the year...
On January 1, 2021, Cameron Inc. bought 10% of the outstanding common stock of Lake Construction Company for $160 million cash, giving Cameron the ability to exercise significant influence over Lake's operations. At the date of acquisition of the stock, Lake's net assets had a fair value of $900 million. Its book value was $800 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference....
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of the outstanding common stock of Lake Construction Company for
$240 million cash, giving Cameron the ability to exercise
significant influence over Lake’s operations. At the date of
acquisition of the stock, Lake's net assets had a fair value of
$600 million. Its book value was $500 million. The difference was
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