On January 1 st .2019, X Company purchased 400,000(80%) of the outstanding common shares of Y Company
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Question:
On January 1st.2019, X Company purchased 400,000(80%) of the outstanding common shares of Y Company for $500,000.At that date, Y Company's book value comprised common shares of $25,000 and retained earnings of $300,000.Also at that date, equipment on Y's books was undervalued by $60,000 and had a remaining useful life of 4 years.The balance of the purchase price discrepancy, if any, related to goodwill.On October 31st. 2019, X sold 100,000 of its common share holdings of Y to an unrelated company for $150,000.During 2019, Y had net income of $120,000 earned evenly through the year and paid dividends of $50,000 in the year.
Required:-
- Calculate the balance in the Investment Account at September 30th.,2019, if X was reporting the investment using the equity method(12 marks)
- What is the balance in the Investment Account at September 3th,2019, if X was reporting the investment using the cost method(2 marks)
- What is the amount of gain or loss arising from X's disposal in Y's common shares on October 31st.2019<(X recording using the equity method) (3 marks)
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