On January 1, 20X6, Synthetic Inc. (SI) paid $300,000 cash to acquire 30% of the common shares
Question:
On January 1, 20X6, Synthetic Inc. (SI) paid $300,000 cash to acquire 30% of the common shares of Organic Inc. (OI). At the time of acquisition, the carrying value of OI’s common shares was $200,000, and its retained earnings were $300,000. The fair values of the INA approximated their carrying values except for a building whose fair value was $100,000 higher than its carrying value. The building has a 20-year remaining useful life, and straight-line depreciation is used. On the acquisition date (January 1, 20X6), SI sold equipment to OI. OI paid cash of $260,000 for the equipment. The equipment had a book value of $200,000 at the time of sale. The remaining useful life of the equipment is estimated to be five years; the estimated residual value is $0. Both companies depreciate equipment on a straight-line basis and have a December 31 year end. They both pay income tax at a rate of 20%. OI reported net income of $80,000 in 20X6, and declared and paid dividends of $20,000 on its common shares. What amount would be reported in SI’s investment in OI account at December 31, 20X6, assuming that the equity method is used?
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay