Question
Use the following information for Problems #9 & #10 (Based on Exercise 6-8) Investment acquired at mid-year (upstream and downstream sales): Parent Corporation owns 60
Use the following information for Problems #9 & #10 (Based on Exercise 6-8)
Investment acquired at mid-year (upstream and downstream sales):
Parent Corporation owns 60 percent of the outstanding voting stock of Sub Corporation, acquired for $240,000 on
July 1, 2011, when Subs common stockholders equity was $300,000. The excess of investment fair value over
book value acquired was due to valuable patents owned by Sub (with a useful life of 5 years) . Data for years 2011 & 2012 are summarized below:
Summary of Transactions: | ||
2011 | 2012 | |
Sub's Net Income | $60,000 | $90,000 |
Unrealized Profit in Ending Inventory (Upstream sale) | $6,000 | $9,000 |
Gain on Sale of Land (Downstream) | $3,000 |
|
Note: This land is still owned by Sub at December 31, 2012.
Preliminary computations are given as follows:
Investment in Sub (at cost) | $240,000 |
Implied Fair Value of Sub ($240,000 / .6) | $400,000 |
BV of Sub | $300,000 |
Excess of FV over BV | $100,000 |
Problem #9:
Compute Parents investment income from Sub for 2011
Problem #10:
Compute Parents investment income from Sub for 2012
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