Sage Inc. bought 40% of Adams Corporation's outstanding common stock on January 2, 2017, for $400,000. The

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Sage Inc. bought 40% of Adams Corporation's outstanding common stock on January 2, 2017, for $400,000. The carrying amount of Adams's net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded the carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year remaining life. All inventory on hand at the beginning of the year was sold during 2017. During 2017, Adams reported $120,000 net income and paid a $20,000 cash dividend.
Required:
1. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 2017?
2. What is the December 31, 2017, balance in the Investment in Adams account?
3. Assume that on January 2, 2017, when Sage acquired a 40% interest in Adams, it elected to account for this investment at fair value. If the fair value of Sage's investment in Adams is $470,000 on December 31, 2017, what amount should Sage report in its 2017 income statement for this investment under the fair value option?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Financial Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

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