On January 1, 2015 Schaepman company acquired 30% of the outstanding voting shares of Thorbecke Inc., for an amount of 770,000 in cash. On that date, Thorbecke reported assets with a book value of 1,900,000 and liabilities with a book value of 700,000. A customer list prepared by Thorbecke had an appraised value of 300,000, although it was not recorded on its books. The expected remaining life of this customer list was 5 years, with a straight line depreciation. The remaining excess value of the consideration transferred was not identifiable to any asset or liability of Thorbecke.

Thorbecke generated net income of 250,000 in 2015 and a net loss of 100,000 in 2016. In each of those two years Thorbecke declared and paid a cash dividend of 15,000 to its stockholders.

During 2015 Thorbecke sold inventory with an original cost of 100,000 to Schaepman for 160,000. Of this inventory 80,000 (price level Schaepman) was sold to outsiders in 2015, the rest was sold in 2016. During 2016 Thorbecke sold inventory with an original cost of 140,000 to Schaepman for 175,000. Of this inventory 100,000 (price level Schaepman) was sold to outsiders in 2016, the rest was sold in 2017.

Question 1

Is it likely that Schaepman has significant influence over Thorbecke? Explain your answer.

Question 2

Assuming that Schaepman has significant influence over Thorbecke, which accounting methods can Schaepman use to record its investment in Thorbecke?

Question 3

For January 1, 2015 compute the amount of goodwill that Schaepman has paid for the investment in Thorbecke

Question 4

For 2015 and 2016 compute the amount that Schaepman should report as income from its investment in Thorbecke in its external financial statements under the equity method.

Question 5

For 2015 and 2016 compute the amount that Schaepman should report as its investment in Thorbecke in its balance sheet under the equity method.