Question
Palm Corporation paid $6,000,000 to acquire all of the stock of Sequoia Company. The book value of the net assets of Sequoia was $2,000,000. All
Palm Corporation paid $6,000,000 to acquire all of the stock of Sequoia Company. The book value of the net assets of Sequoia was $2,000,000. All of Sequoia's assets and liabilities are carried at amounts approximating fair value, except that land is overvalued by $600,000. Which of the following is TRUE concerning the consolidation working paper eliminating entries at the date of acquisition?
a. Working paper eliminating entry E reduces Investment in Sequoia by $4,000,000
b. Working paper eliminating entry R increases Goodwill by $4,600,000
c. Working paper eliminating entry R increases Land by $600,000
d. Working paper eliminating entry R increases Investment in Sequoia by $4,000,000
On January 1, 2017, Paulson Corporation purchased 85% of the outstanding common stock of Sunshine Company, which became a subsidiary of Paulson. No goodwill was reported on this acquisition. Differences between book value and fair value of the net identifiable assets of Sunshine Company on January 1, 2017, were limited to the following:
Book value Fair value
Inventories $ 7,800 $ 7,400
Equipment (net) 22,000 25,600
The remaining useful life of the equipment was four years with no salvage value. Sunshine used straight line depreciation. Sunshine reported cost of goods sold (FIFO) of $12,000 and net income of $30,000 in 2017. Paulson uses the complete equity method to account for its investment in Sunshine. On its income statement for 2017, Paulson would report an Equity in Income of Sunshine of
a. $25,075.
$25,500.
$25,925.
$24,395.
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