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On January 1, 2018, Strait Corp. purchased 100% of the outstanding common stock of Amarillo Company. On the date of the acquisition, Amarillo identifiable net

On January 1, 2018, Strait Corp. purchased 100% of the outstanding common stock of Amarillo Company. On the date of the acquisition, Amarillo identifiable net assets had fair values that approximated their recorded book values. The acquisition resulted in no goodwill. Strait Corp. uses the cost method to account for its investment in Amarillo Company.

The following financial statement information is for Amarillo Company for the year ended December 31, 2019:

2019

2018

Revenues

$100,000

$120,000

Expenses

47,000

65,000

Net income

$53,000

$55,000

Beginning of year retained earnings

$680,000

$650,000

Net income

53,000

55,000

Dividends

-17,000

-25,000

End of year retained earnings

$716,000

$680,000

Cash and receivables

$235,000

$180,000

Property, plant & equipment, net

880,000

800,000

Intangible assets

505,000

450,000

Total assets

$1,620,000

$1,430,000

Current liabilities

$164,000

$60,000

Noncurrent liabilities

400,000

350,000

Common stock

50,000

50,000

Additional paid in capital

290,000

290,000

Retained earnings

716,000

680,000

Total liabilities and stockholders equity

$1,620,000

$1,430,000

  1. What is the balance in the Equity Investment account in Strait Corp.s pre-consolidation balance sheet on December 31, 2019?

a. $ 990,000

b. $1,020,000

c . $1,056,000

d. $1,370,000

  1. For this question only, assume that Amarillo identifiable net assets had fair values that approximated their recorded book values, except for equipment which had fair value that was $50,000 higher than the book value and had a remaining useful life of 10 years. The acquisition also resulted in $125,000 of goodwill.

What is the amount of the [ADJ] entry necessary to prepare the consolidated financial statements for the year ended December 31, 2019?

a. $ 25,000

b. $ 30,000

c. $ 36,000

d. $ 98,000

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