Question
On 1/1/19, Hula Company purchased 40% of Flower Company's common stock for $200,000. Flower's book value of equity at that date consisted of $100,000 common
On 1/1/19, Hula Company purchased 40% of Flower Company's common stock for $200,000. Flower's book value of equity at that date consisted of $100,000 common stock and $400,000 retained earnings.
During 2019, Flower reported income of $100,000 and paid dividends of $30,000. The total fair value of Hula's investment in Flower's stock on 12/31/19 is $240,000.
Also during 2019, Flower sold inventory to Hula which originally cost Flower $150,000. Flower's price to Hula is based on 20% on mark-up cost. Hula has 25% of this inventory on hand at 12/31/19.
Assuming that Hula is an important customer to Flower and that its ownership percentage allows membership on Flower's board of directors, answer the following questions. Round to the nearest dollar.
a) The total asset amount related to the Investment in Flower on Hula's 12/31/19 balance sheet is _______
b) The Flower investment increased Hula's net income in 2019 to _______
c) In 2020, Hula sold all of the remaining inventory from the Flower purchase. No additional purchases occurred in 2020. If Flower reported income of $90,000 in 2020, what is Hula's investment income for 2020? _______
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started