Question
Problem 2. On January 2, 2015, NEW Company acquired 45% of the stocks of OLD Company for $30 million in cash. NEW Company accounts for
Problem 2. On January 2, 2015, NEW Company acquired 45% of the stocks of OLD Company for
$30 million in cash. NEW Company accounts for its investment using the equity method. At the time of acquisition, OLD Companys balance sheet was as follows (in millions): Assets | Liabilities and equity | ||
Current Assets | 20 | Current Liabilities | 42 |
Property and equipment, net | 415 | Long-term debt | 518 |
Patents and trademarks | 150 | ||
Capital Stock | 12 | ||
Retained earnings | 13 |
Valuation of OLDs assets and liabilities revealed that its reported patents and trademarks (10-year life) had a fair value of $160 million and it had unrecognized brand names (15-year life) worth $9 million. OLDs December 31, 2018, retained earnings balance is $25 million. For 2018, it reported net income of $2.5 million and paid $650,000 in dividends. Required:
Prepare the 2018 entries to report the above information on NEWs books? Show all your calculations
2. Calculate the Investment in OLD Company, reported on NEWs December 31, 2018 balance sheet. Show all your calculations
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