Question
On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow
On January 1, 20X0, Hunter Corporation issued 10,000 of its $10 par value shares to acquire 45 percent of the shares of Arrow Manufacturing. Arrow Manufacturing's balance sheet immediately before the acquisition contained the following items: |
ARROW MANUFACTURING Balance Sheet January 1, 20X0 | ||||||||
Book Value | Fair Value | |||||||
Assets | ||||||||
Cash and Receivables | $ | 46,000 | $ | 46,000 | ||||
Land | 81,000 | 91,000 | ||||||
Buildings & Equipment (net) | 130,000 | 160,000 | ||||||
Patent | 91,000 | 91,000 | ||||||
Total Assets | 348,000 | |||||||
Liabilities & Equities | ||||||||
Accounts Payable | $ | 172,000 | 172,000 | |||||
Common Stock | 133,000 | |||||||
Retained Earnings | 43,000 | |||||||
Total Liabilities & Equities | $ | 348,000 | ||||||
On the date of the stock acquisition, Hunter's shares were selling at $35, and Arrow Manufacturing's buildings and equipment had a remaining economic life of 10 years. The amount of the differential assigned to goodwill is not impaired. |
In the two years following the stock acquisition, Arrow Manufacturing reported net income of $80,000 and $50,000 and paid dividends of $25,000 and $40,000, respectively. Hunter used the equity method in accounting for its ownership of Arrow Manufacturing.
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