On June 30, 2020, Cape Company purchased 25% of the outstanding ordinary shares of Bit Co. at a total cost of P2,100,000. The book value of Bit Co.’s net assets on acquisition date was P7,200,000. For the following reasons, Cape was willing to pay more than book value for Bit Co. stock:

• Bit Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years.
• Bit co. owns a tract of land with a current fair value of P900,000 more than its carrying amount.
• All other identifiable tangible and intangible assets of Bit Co. have current fair values that are equal to their carrying amounts.

Bit reported net income of P1,620,000, earned evenly during the current year ended December 31, 2020. Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders.

Market value of Bit Co.’s ordinary shares at December 31, 2020 is P9 million. Cape Company’s financial year-end is December 31.

• What is the amount of goodwill paid by Cape Company?

• What amount of investment revenue should Cape report on its income statement for the year ended December 31, 2020 under the equity method?

• Under the equity method, the carrying value of Cape Company’s investment in ordinary shares of Bit Co. on December 31, 2020 should be: _____

Answer rating: 100% (QA)

1 Goodwill is the excess amount we paid than the actual val... View the full answer