UBetchaCorporation acquired 30 percent of the voting stock of TrunksCorporation on January 2, 2019, for $1.6 million in cash. Trunks’ balance sheet and estimated fair values of its assets and liabilities on January 2, 2019 are as follows (in thousands).
Trunks Corporation |
||
Balance Sheet |
||
January 2, 2019 |
||
Book Value |
Fair Value |
|
Assets |
||
Cash and receivables |
300 |
300 |
Inventory |
600 |
350 |
Investments |
250 |
250 |
Land |
400 |
1,000 |
Property and equipment |
2,000 |
350 |
Accumulated depreciation |
(750) |
|
TOTAL ASSETS |
2,800 |
2,250 |
Liabilities and Equity |
||
Current liabilities |
450 |
450 |
Long-term liabilities |
1,500 |
1,500 |
Common stock, $2.00 par |
300 |
|
Additional paid-in capital |
450 |
|
Retained earnings |
400 |
|
Accumulated other comprehensive income |
(300) |
|
TOTAL LIABILITIES AND EQUITY |
2,800 |
1,950 |
In addition to its reported assets, Trunkshas unreported franchise agreements (5‑year life) valued at $500,000. Its property and equipment has a 20‑year average remaining life. Trunksreported income of $750,000 and paid no dividends in 2019. Please note that Trunksuses the FIFO inventory method.
Required
a | How many shares of Trunk's stock did Ubetcha acquire? | ||
Common Stock issued and outstanding | $300,000 | ||
Par value per share | $2 | ||
Number of shares outstanding | 150,000 | ($300000/$2) | |
Voting stock acquired by Ubetcha | 30% | ||
Number of shares Ubetcha acquired | 45,000 | (150000 x 30%) | |
b | Computation of Ubetcha's equity in Trunk's net income for 2019 | ||
Net income of Trunk's | $750,000 | ||
Add: Cost of goods sold fair value adj. | $250,000 | ||
Add: Excess depreciation charged on property and equipment | $45,000 | (900000/20) | |
Less: Amortization of unreported franchise agreement | ($100,000) | (500000/5). | |
Adjusted net income | $945,000 | ||
Ubetcha's equity in net income-30% | $283,500 | (945000*30%) |
Read all the instructions and answer all the questions. Please be sure to include ALLcalculations...
UBetcha Corporation acquired 30 percent of the voting stock of Trunks Corporation on January 2, 2019, for $1.6 million in cash. Trunks’ balance sheet and estimated fair values of its assets and liabilities on January 2, 2019 are as follows (in thousands). Trunks Corporation Balance Sheet January 2, 2019 Book Value Fair Value Assets Cash and receivables 300 300 Inventory 600 350 Investments 250 250 Land 400 1,000 Property and equipment 2,000 350 Accumulated depreciation (750) TOTAL ASSETS 2,800 2,250...
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