Question
Quake Corporation paid $1,700,000 for a 30% interest in Tremor Corporations outstanding voting stock on January 1, 2011. The book values and fair values of
Quake Corporation paid $1,700,000 for a 30% interest in Tremor Corporations outstanding voting stock on January 1, 2011. The book values and fair values of Tremors assets and liabilities on January 1, along with additional information, are as follows (in thousands):
Book Value Fair Value
Cash $ 400 $ 400
Accounts receivable-net 700 700
Inventories (sold in 2011) 1,000 1,200
Other current assets 200 200
Land 900 1,700
Building-net (10-years remaining life) 1,500 2,000
Equipment-net (7-years remaining life) 1,200 500
Patent (5-years remaining life) ------- 300
Total Assets $5,900 $7,000
Accounts Payable $ 800 $ 800
Other current liabilities 200 200
Long term notes payable (due January 1, 2016) 1,000 1,100
Capital stock, $10 par 3,000
Retained earnings 900
Total $5,900
Tremor Corporation reported net income of $1,200,000 for 2011 and paid cash dividend of $600,000.
Required:
Prepare a schedule to allocate the investment fair values/ book value differentials relating to Quakes investment in Tremor.
Calculate Quakes net income from Tremor for 2011. (Please show detail of your calculation for adjusting this net income.
Show journal entries for all 2011 investment transactions in the book of Corporation.
Show the T account for investment in Tremor Corporation in the book of Quake Corporation.
Determine the balance of Quakes Investment in Tremor account at December 31, 2011.
Prepare a reconciliation statement to present the balance of this investment.
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