Question
On January 1, 2006, Hall acquired 25 percent of the outstanding shares of Oates for $250,000. Information related to this investment is presented below: On
On January 1, 2006, Hall acquired 25 percent of the outstanding shares of Oates for $250,000. Information related to this investment is presented below:
On January 1, 2006, the market value of Oates was $1,000,000. The book value of Oates on that date was $800,000. This $200,000 difference related to an intangible asset self-developed by Oates. This intangible asset has 10 years useful life as of Jan. 1, 2006 (HINT: this refers to basis differences- youll find a very similar example in your lecture notes). Both companies use straight-line amortization.
For the year ended December 31, 2006, Oates recorded Net Income of $160,000 and declared (and paid) dividends of $120,000.
On December 31, 2006, the market value of Oates was $1,200,000.
- Provide the journal entries made by Hall during 2006 to account for its investment in Oates.
- At what amount was the investment in Oates listed on Halls December 31, 2006 Balance Sheet?
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Corporate Finance Core Principles and Applications
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077971304, 77971302, 978-0073530680, 73530689, 978-0071221160, 71221166, 978-0077905200
