Question
Problem 1. On January 1, 2019, Florida Corp. acquired 40% of Miami Corp.s common stock for $700,000 paid in cash. This investment gave Florida Corp.
Problem 1. On January 1, 2019, Florida Corp. acquired 40% of Miami Corp.s common stock for $700,000 paid in cash. This investment gave Florida Corp. significant influence over Miami Corp. Miamis net assets on that date were $1.5 million. A trademark held by Miami having a $200,000 book value was actually worth $350,000. This trademark has a 20-year life remaining.
Miami immediately begins supplying inventory to Florida as follows:
Year |
Cost to Miami Corp. |
Transfer price |
Amount held by Florida Corp. at year-end |
2019 | 80,000 | 100,000 | 25,000 |
2020 | 90,000 | 150,000 | 45,000 |
Assume all inventory held at the end of the year by Florida Corp. is sold at the beginning of the following year.
Miami Corp. reports net income of $85,000 in 2019 and $210,000 in 2020 while paying $50,000 in dividends each year.
Required:
- What is the balance of Florida Corp.s Investment in Miami Corp. at December 31, 2019?
- What is the Equity in Investee Income in Miami Corp. to be reported by Florida Corp. in 2019?
- What is the balance of Florida Corp.s Investment in Miami Corp. at December 31, 2020?
- What is the Equity in Investee Income in Miami to be reported by Florida in 2020?
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