Question
On January 4, 2011, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using
On January 4, 2011, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000. Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose book values and fair values differed: Building (20 year life) BV: 1,000,000; FV: 1,800,000
Equipment (5 year life) BV: 1,500,000; FV: 2,000,000
Franchies (10 year life) BV: 0; FV: 700,000
Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported net income of $400,000 for 2011, and paid dividends of $200,000 during that year.
QUESTIONS: PLEASE EXPLAIN AND SHOW WORK!!!! I KNOW THE ANSWER. PLEASE AND THANK YOU!!!
What is the amount of the excess of purchase price over book value?
ANSWER: $1,000,000
How much goodwill is associated with this investment?
ANSWER: $200,000
ALL OF THESE ANSWERS ARE CORRECT SO DONT STATE OTHERWISE.
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