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Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had

  1. Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
    Big Guy Humble Humble
    (carrying value) (carrying value) (fair value)
    Cash $800,000 $245,000 $245,000
    Accounts Receivable $240,000 $40,000 $40,000
    Inventory $60,000 $45,000 $50,000
    Equipment (net) $900,000 $80,000 $72,000
    Trademark $90,000 $193,000
    Total Assets $2,000,000 $500,000
    Current Liabilities $200,000 $160,000 $160,000
    Bonds Payable $260,000 $70,000 $40,000
    Common Shares $900,000 $180,000
    Retained Earnings $640,000 $90,000
    Total Liabilities and Equity $2,000,000 $500,000
    The following are the financial statements for both companies for the fiscal year ended June 30, 2020: Income Statements:
    Big Guy Humble
    Sales $640,000 $240,000
    Investment Revenue $8,480
    Less: Expenses:
    Cost of Goods Sold $300,000 $160,000
    Depreciation $81,000 $34,000
    Interest Expense $34,000 $26,000
    Other Expenses $5,000 $8,000
    Net Income $228,480 $12,000
    Retained Earnings Statements
    Big Guy Humble
    Balance, July 1, 2019 $960,560 $48,000
    Net Income $228,480 $12,000
    Dividends $20,000 $2,000
    Balance, June 30, 2020 $1,169,040 $58,000
    Balance Sheets
    Big Guy Humble
    Cash $1,200,000 $365,000
    Accounts Receivable $270,000 $55,000
    Investment in Humble $319,040
    Inventory $70,000 $70,000
    Equipment (net) $820,000 $65,000
    Trademark $85,000
    Total Assets $2,679,040 $640,000
    Current Liabilities $350,000 $332,000
    Bonds Payable $260,000 $70,000
    Common Shares $900,000 $180,000
    Retained Earnings $1,169,040 $58,000
    Total Liabilities and Equity $2,679,040 $640,000
    An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies. The amount of depreciation expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:

    $113,400.

    $113,720.

    $115,000.

    $116,280.

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