On January 1, 2020, Coldspring Corp. paid $770,000 to acquire Whitt Co. Coldspring used the equity...
On January 1, 2020, Coldspring Corp. paid $770,000 to acquire Whitt Co. Coldspring used the equity method to account for the investment. The following information is available for the assets, liabilities, and stockholders' equity accounts of Whitt:
|
Book Value |
Fair Value |
|
|
Current assets |
$95,000 |
$95,000 |
|
Land |
95,000 |
120,000 |
|
Building (twenty year life) |
255,000 |
310,000 |
|
Equipment (five year life) |
185,000 |
190,000 |
|
Current liabilities |
40,000 |
40,000 |
|
Long-term liabilities |
65,000 |
65,000 |
|
Common stock |
140,000 |
|
|
Additional paid-in capital |
300,000 |
|
|
Retained earnings |
210,000 |
Whitt earned net income for 2020 of $125,000 and paid dividends of $18,000 during the year.
1. The 2020 consolidation entry to reverse Coldspring’s recognition of Whitt's income and dividends in the current year would include a net credit to Equity Investment for:
2.If Coldspring had income from its own operations, excluding any investment income, of $425,500 in 2020, what would be consolidated net income?
The answers are 103,250 and 546,750, How to get these answers?
Homework Answers
Amortization expense:
Equipment = (190000-185000)/5 = 1000
Building = (310000-255000)/20 = 2750
1. net credit to Equity Investment for = 125,000 - 18,000 -1000 - 2750 = 103250
2. Consolidated net income = 425,500 + 18000 + 103250 = 546,750
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