Question
Use the following facts for Multiple Choice problems 17 and 18 (each question is independent of the other): The following financial statement information is for
Use the following facts for Multiple Choice problems 17 and 18 (each question is independent of the other):
The following financial statement information is for an investor company and an investee company on January 1, 2016. On January 1, 2016, the investor companys common stock had a traded market value of $22 per share, and the investee companys common stock had a traded market value of $18 per share.
| Book Values
| Fair Values | ||
| Investor
| Investee | Investor | Investee |
Receivables & inventories | $ 96,000 | $ 48,000 | $ 90,000 | $ 43,200 |
Land | 192,000 | 96,000 | 210,000 | 120,000 |
Property & equipment | 216,000 | 96,000 | 240,000 | 124,800 |
Trademarks & patents |
|
| 80,000 | 76,800 |
Total assets | 504,000 | 240,000 | 620,000 | 364,800 |
Liabilities | 144,000 | 76,800 | 160,000 | 82,000 |
Common stock ($1 par) | 20,000 | 16,000 |
|
|
Additional paid-in capital | 268,000 | 137,600 |
|
|
Retained earnings | 72,000 | 9,600
|
|
|
Total liabilities & equity | $504,000 | $240,000 |
|
|
Net assets | $360,000 | $163,200 | $460,000 | $282,800 |
MC17. Assume that the investor company issued 15,000 new shares of the investor companys common stock in exchange for all of the individually identifiable assets and liabilities of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Companys balance (i.e., on the investors books, before consolidation) for Goodwill immediately following the acquisition of the investees net assets:
A. $166,800
B. $119,600
C. $47,200
D. $5,200
MC18. Assume that the investor company issued 15,000 new shares of the investor companys common stock in exchange for 100% of the common stock of the investee company, in a transaction that qualifies as a business combination. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Companys balance (i.e., on the investors books, before consolidation) for Investment in Investee immediately following the acquisition of the investees common stock:
A. $460,000
B. $330,000
C. $282,800
D. $270,000
Use the following facts for Multiple Choice problems 19 and 20 (each question is independent of the other):
On January 1, 2016, an investor purchases 18,000 common shares of an investee at $12 (cash) per share. The shares represent 25% ownership in the investee. The investee shares are not considered marketable because they do not trade on an active exchange. On January 1, 2016, the book value of the investees assets and liabilities equals $650,000 and $170,000, respectively. On that date, the appraised fair values of the investees identifiable net assets approximated the recorded book values. During the year ended December 31, 2016, the investee company reported net income equal to $32,500 and dividends equal to $12,000.
MC19. Assume the investor does not exert significant influence over the investee. Determine the balance in the Investment in Investee account at December 31, 2016.
A. $216,000
B. $20,500
C. $228,000
D. $221,125
MC20. Assume the investor can exert significant influence over the investee. Determine the balance in the Investment in Investee account at December 31, 2016.
A. $216,000
B. $20,500
C. $228,000
D. $221,125
Use the following facts for Multiple Choice problems 21 and 22 (each question is independent of the other):
On January 1, 2016, an investor purchases 16,000 common shares of an investee at $11 (cash) per share. The shares represent 22% ownership in the investee. The investee shares are not considered marketable because they do not trade on an active exchange. On January 1, 2016, the book value of the investees assets and liabilities equals $850,000 and $300,000, respectively. On that date, the appraised fair values of the investees identifiable net assets approximated the recorded book values, except for a customer list. On January 1, 2016, the customer list had a recorded book value of $0, an estimated fair value equal to $45,000 and a 5 year remaining useful life. During the year ended December 31, 2016, the investee company reported net income equal to $60,000 and dividends equal to $20,000.
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