Georgia Corporation acquired 25% of the outstanding voting shares of Atlanta Corporation for $400,000 in cash on January 1, 2018, when Atlanta Corporation had a book value of $1,500,000. An additional 10% of the stock is purchased on January 1, 2019, for $217,000.

The following information is available for Atlanta Corporation:

	2018	2019	2020
Net Income	700,000	750,000	900,000
Dividends	150,000	100,000	100,000

The Fair Value of Atlanta Corporation’s stock at December 31, 2018 was $2,300,000.

The book values of Atlanta Corporation’s asset and liability accounts are considered as equal to fair values except for a Customer List whose value accounted for Georgia Corporation’s excess cost in each purchase. The Customer List had a remaining life of 10 years at January 1, 2018.

Required (treat each scenario as independent of the other!):

1. If Georgia Corporation sells its entire investment in Atlanta Corporation on January 1, 2020, for $1,300,000 cash, what is the impact on Georgia Corporation’s income? Show all your calculations (4 points)

2. 
   
3. Assume that Georgia Corporation sells inventory to Atlanta Corporation during 2019 and 2020 as follows:

	Cost to Georgia	Price to Atlanta	Year-End Balance (at transfer price)
2019	35,000	50,000	20,000 (sold in following year)
2020	33,000	60,000	40,000 (sold in following year)

What amount of equity income should Georgia recognize for the year 2020? Show all your calculations (2 points)

Answer rating: 100% (QA)

Impact on Georgia Corporation Income As on 1 Jan 2018 Georgia Corporations cost of investment 25 sta... View the full answer