On January 1, 20X7, Robohn Company purchased for cash 40 percent of Lowell Companys 300,000 shares of
Question:
On January 1, 20X7, Robohn Company purchased for cash 40 percent of Lowell Company’s 300,000 shares of voting common stock for $1,800,000 when 40 percent of the underlying equity in Lowell’s net assets was $1,740,000. The payment in excess of underlying equity was assigned to amortizable assets with a remaining life of six years. As a result of this transaction, Robohn has the ability to exercise significant influence over Lowell’s operating and financial policies.
Lowell’s net income for the year ended December 31, 20X7, was $600,000. During 20X7, Lowell paid $325,000 in dividends to its shareholders. The income reported by Robohn for its investment in Lowell should be
a. $120,000.
b. $130,000.
c. $230,000.
d. $240,000.
Step by Step Answer:
Advanced Financial Accounting
ISBN: 9781260165111
12th Edition
Authors: Theodore Christensen, David Cottrell, Cassy Budd