Question
On January 1, 2018, Auburn Corp. purchased 30% of the voting common stock of Brownsville Co., paying $2,700,000. Auburn will use the equity method to
On January 1, 2018, Auburn Corp. purchased 30% of the voting common stock of Brownsville Co., paying $2,700,000. Auburn will use the equity method to account for this investment. At the time of the investment, Brownsvilles total stockholders equity was $8,000,000. Austin gathered the following information about Brownsvilles assets and liabilities:
|
Book Value |
|
Fair Value |
|
Buildings (10 |
- |
year life) |
|
$ 400,000 |
|
$ 500,000 |
|
Equipment (5 |
Franchises (8- |
- |
year life) |
year life) |
|
1,000,000 |
0 |
|
1,300,000 |
400,000 |
|
|
For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. For the year Brownsville Co. realized $800,000 of net income and paid dividends of $100,000. Bownsville Co. fair value at 12/31/2018 was $9,700,000.
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