Question

Use the following facts for Multiple Choice problems 17 and 18 (each question is independent of the other):

The following financial statement information is for an investor company and an investee company on January 1, 2016. On January 1, 2016, the investor company’s common stock had a traded market value of $22 per share, and the investee company’s common stock had a traded market value of $18 per share.

	Book Values		Fair Values
	Investor	Investee	Investor	Investee
Receivables & inventories	$ 96,000	$ 48,000	$ 90,000	$ 43,200
Land	192,000	96,000	210,000	120,000
Property & equipment	216,000	96,000	240,000	124,800
Trademarks & patents			80,000	76,800
Total assets	504,000	240,000	620,000	364,800
Liabilities	144,000	76,800	160,000	82,000
Common stock ($1 par)	20,000	16,000
Additional paid-in capital	268,000	137,600
Retained earnings	72,000	9,600
Total liabilities & equity	$504,000	$240,000
Net assets	$360,000	$163,200	$460,000	$282,800

MC17. Assume that the investor company issued 15,000 new shares of the investor company’s common stock in exchange for all of the individually identifiable assets and liabilities of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balance (i.e., on the investor’s books, before consolidation) for “Goodwill” immediately following the acquisition of the investee’s net assets:

A. $166,800

B. $119,600

C. $47,200

D. $5,200

MC18. Assume that the investor company issued 15,000 new shares of the investor company’s common stock in exchange for 100% of the common stock of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balance (i.e., on the investor’s books, before consolidation) for “Investment in Investee” immediately following the acquisition of the investee’s common stock:

A. $460,000

B. $330,000

C. $282,800

D. $270,000

Use the following facts for Multiple Choice problems 19 and 20 (each question is independent of the other):

On January 1, 2016, an investor purchases 18,000 common shares of an investee at $12 (cash) per share. The shares represent 25% ownership in the investee. The investee shares are not considered “marketable” because they do not trade on an active exchange. On January 1, 2016, the book value of the investee’s assets and liabilities equals $650,000 and $170,000, respectively. On that date, the appraised fair values of the investee’s identifiable net assets approximated the recorded book values. During the year ended December 31, 2016, the investee company reported net income equal to $32,500 and dividends equal to $12,000.

MC19. Assume the investor does not exert significant influence over the investee. Determine the balance in the “Investment in Investee” account at December 31, 2016.

A. $216,000

B. $20,500

C. $228,000

D. $221,125

MC20. Assume the investor can exert significant influence over the investee. Determine the balance in the “Investment in Investee” account at December 31, 2016.

A. $216,000

B. $20,500

C. $228,000

D. $221,125

Use the following facts for Multiple Choice problems 21 and 22 (each question is independent of the other):

On January 1, 2016, an investor purchases 16,000 common shares of an investee at $11 (cash) per share. The shares represent 22% ownership in the investee. The investee shares are not considered “marketable” because they do not trade on an active exchange. On January 1, 2016, the book value of the investee’s assets and liabilities equals $850,000 and $300,000, respectively. On that date, the appraised fair values of the investee’s identifiable net assets approximated the recorded book values, except for a customer list. On January 1, 2016, the customer list had a recorded book value of $0, an estimated fair value equal to $45,000 and a 5 year remaining useful life. During the year ended December 31, 2016, the investee company reported net income equal to $60,000 and dividends equal to $20,000.

Answer 1

MC17:

The correct answer is C) $47,200.

Supporting calculations:

Therefore, Goodwill is $47,200.

Note: As per HOMEWORKLIB RULES, the first multiple choice question is answered, hence, please post the remaining questions separately.