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Question #5: (Marks: 5+2+1+12=20) Forest Company acquired Garden Company on July 1, Year 1. Information relating to acquisition and other relevant information for year
Question #5: (Marks: 5+2+1+12=20) Forest Company acquired Garden Company on July 1, Year 1. Information relating to acquisition and other relevant information for year 8 are given below. Additional Information: 1. Forest acquired 80 percent of Garden for $184,800 on July 1, Year 1, and accounts for its investment under the cost method. 2. Forest sells goods to garden on a regular basis at a gross profit of 30 percent. During Year 8, these sales totaled $150,000. On January 1, Year 8, the inventory of Garden contained goods purchased from Forest amounting to $18,000, while the December 31, Year 8, inventory contained goods purchased from Forest amounting to $ 22,000. 9 3. Forest's 6% bonds have a par value of $100,000. Interests are paid annually on December 31, and it will mature on December 31, year 11. These bonds had a carrying value of $93,376 on January 1, Year 8. On that date, Garden acquired $60,000 of these bonds on the open market at a cost of $57,966. 4. Assume a 40 percent corporate tax rate and allocate bond gains (losses) between the two companies.
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