On January 1, Year 8, Summer Company’s shareholders’ equity was as follows:
Common shares...... $20,000
Retained earnings...... 70,000
.............. $90,000
Plumber Company held 90% of the 4,000 outstanding shares of Summer on January 1, Year 8, and its investment in Summer Company account had a balance of $126,000 on that date. Plumber accounts for its investment by the equity method. Any acquisition differential was allocated to unrecorded trademarks with a remaining useful life on January 1, Year 8, of 10 years.
The following events took place subsequent to January 1, Year 8:
• On July 1, Year 8, Plumber sold 720 of the Summer Company shares it held at a price of $30 per share.
• During Year 8, Summer reported a net income of $20,000 (earned equally throughout the year) and declared dividends of $5,000 on December 31.
• During Year 9, Summer reported a net income of $28,000 and paid dividends of $8,000 on November 15.
• On December 29, Year 9, Summer issued an additional 500 shares to third par-ties at a price of $46 per share.
(a) Calculate the gain or loss in Year 8 and Year 9 as a result of the ownership change that took place each year.
(b) Would the gain or loss appear on the consolidated income statement each year? Explain.
(c) Calculate the consolidated trademarks as at December 31, Year 9.
(d) Does the value for the trademarks on the consolidated balance sheet as calculated in part (c) comply with the historical cost principle? Explain.

  • CreatedJune 08, 2015
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