Equity Method: Premium Investments Ltd. bought 40% of the outstanding com-mon shares of Trans- BC Operations Ltd. in early 20X5 for $ 598,000. Premium Investments has significant influence. On this date, Trans- BC Operations had assets and liabilities as follows:

Most of the difference between fair value and book value for assets was related to a depreciable fixed asset with a $ 65,000 book value and a $ 305,000 fair value. This asset has a five- year remaining life. The remainder of the difference between book value and fair value related to land. In 20X5, Trans- BC Operations earned $ 245,000 and declared and paid common dividends of $ 90,000. Goodwill was not impaired in 20X5.

1. How much goodwill is inherent in the purchase price? How ( and when) will goodwill affect investment revenue?
2. How much investment revenue will Premium Investments report in 20X5?
3. What is the balance in the investment account on Premium Investments’ books at the end of20X5?

  • CreatedFebruary 17, 2015
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