P2-12 Allocation schedule and computations (excess cost over fair value)

Pop Corporation acquired a 70 percent interest in Son Corporation on April 1, 2016, when it purchased 14,000 of Son’s 20,000 outstanding shares in the open market at $13 per share. Additional costs of acquiring the shares consisted of $10,000 legal and consulting fees. Son Corporation’s balance sheets on January 1 and April 1, 2016, are summarized as follows (in thousands):

January 1 (per books) April 1 (per books) April 1 (fair values)

Cash $ 40 $ 45 $ 45 Inventories 35 60 50 Other current assets 25 20 20 Land 30 30 50 Equipment—net 100 95 135 Total assets $230 $250 $300 Accounts payable $ 45 $ 40 $ 40 Other liabilities 15 20 20 Capital stock, $5 par 100 100 Retained earnings January 1 70 70 Current earnings 20 Total liabilities and equity $230 $250 ADDITIONAL INFORMATION 1. The overvalued inventory items were sold in September 2016.

2. The undervalued items of equipment had a remaining useful life of four years on April 1, 2016.

3. Son’s net income for 2016 was $80,000 ($60,000 from April to December 31, 2016).

4. On December 1, 2016, Son declared dividends of $2 per share, payable on January 10, 2017.

5. Any unidentified assets of Son are not amortized.

REQuIRED 1. Prepare a schedule showing how the difference between Pop’s investment cost and book value acquired should be allocated to identifiable and/or unidentifiable assets.
2. Calculate Pop’s investment income from Son for 2016.
3. Determine the correct balance of Pop’s Investment in Son account at December 31, 2016.