Big Company wants to acquire 25% of Little Company. Little Company has balance sheet assets of $500,000 and liabilities of $300,000 for a net book value of $200,000. Big Company determines that Little Company has buildings that are undervalued by $120,000. Adding this to the net book value of $200,000, Big determines that the company is worth $320,000 and offers $80,000 (25% of $320,000) for a quarter share of the company.

Assume in the above example that Little Company has net income of $50,000 in the first year after Big Companys acquisition and pays $10,000 of dividends. The useful life of the building is 20 years. What  If Big Company paid $80,000 for its 25% share of Little Company, the journal entries to record the investment during this year are?

Answer rating: 100% (QA)

To record the investment by Big Company in Little Company the following journal entries would be mad... View the full answer