Question
On January 1, 2022, Pronto Company acquired all of Speedy Inc.'s voting stock for $33,600,000. Speedy's net assets were reported at amounts approximating book value,
On January 1, 2022, Pronto Company acquired all of Speedy Inc.'s voting stock for $33,600,000. Speedy's net assets were reported at amounts approximating book value, but Pronto determined that Speedy had the following previously unreported intangible assets: c Developed technology, fair value $2,800,000, 5-year life Favorable leases, fair value $1,400,000, 4-year life Speedy's shareholders' equity on January 1, 2022, was $14,000,000. It is now December 31, 2023 (two years later). Speedy reported net income of $1,120,000 in 2022. There are no impairments of identifiable intangibles or goodwill in 2022 or 2023. Pronto uses the complete equity method to report its investment in Speedy on its own books. Speedy's December 31, 2023, trial balance appears below. Dr (Cr) Current assets $28,000,000 Property and equipment, net $70,000,000 Liabilities ($81,200,000) Capital stock ($2,800,000) Retained earnings, January 1 ($12,320,000) Sales revenue ($98,000,000) Cost of goods sold $84,000,000 Operating expenses $12,320,000 $0 Assume Pronto uses the cost method to report its investment in Speedy. On the December 31, 2023, consolidation working paper, an adjusting entry (A) is necessary to increase Investment in Speedy, before continuing with eliminating entries (E), (R), and (O). Adjusting entry (A) increases the investment by Select one: a. $210,000 b. $2,800,000 c. $980,000 d. $1,120,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started