Question
On January 1, 2020, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc., for $4,500,000 in cash. Both companies provide
On January 1, 2020, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc., for $4,500,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trails board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trails board, which gave it the ability to significantly influence Sauk Trails operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trails assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 200,000 $ 200,000 Computing equipment 5,810,000 7,140,000 Patented technology 190,000 4,180,000 Trademark 240,000 2,180,000 Liabilities (275,000 ) (275,000 ) Also, as of January 1, 2020, Sauk Trails computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a three-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends:
Net Income Dividends Declared 2020 $ 1,980,000 $ 240,000 2021 2,165,000 250,000
How much of Ridge Roads $4,500,000 payment for Sauk Trail is attributable to goodwill?
What amount should Ridge Road report for its equity in Sauk Trails earnings on its income statements for 2020 and 2021?
What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2020 and 2021?
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