Huge Corporation acquires 5% of the outstanding voting shares of Tiny Corporation on January 1, 2016,...

Transcribed Image Text:

Huge Corporation acquires 5% of the outstanding voting shares of Tiny Corporation on January 1, 2016, for $100,000 when Tiny Corporation has a book value of $1,500,000. Despite the low percentage of ownership, Huge Corporation is able to exercise significant influence over Tiny, and therefore uses the equity method to account for the investment. An additional 30% of the stock is purchased on January 1, 2017, for $651,000. The following information is available for Tiny Corporation: 2016 2017 2018 Net Income 700,000 750,000 900,000 Dividends 150,000 100,000 100,000 The Fair Value of Tiny Corporation's stock at December 31, 2016 was $2,170,000. The book values of Tiny Corporation's asset and liability accounts are considered as equal to fair values except for a Customer List whose value accounted for Huge Corporation's excess cost in each purchase. The Customer List had a remaining life of 10 years at January 1, 2016. Required: 1. If Huge Corporation sells its entire investment in Tiny Corporation on January 1, 2019, for $1,300,000 cash, what is the impact on Huge Corporation's income? Show all your calculations Huge Corporation acquires 5% of the outstanding voting shares of Tiny Corporation on January 1, 2016, for $100,000 when Tiny Corporation has a book value of $1,500,000. Despite the low percentage of ownership, Huge Corporation is able to exercise significant influence over Tiny, and therefore uses the equity method to account for the investment. An additional 30% of the stock is purchased on January 1, 2017, for $651,000. The following information is available for Tiny Corporation: 2016 2017 2018 Net Income 700,000 750,000 900,000 Dividends 150,000 100,000 100,000 The Fair Value of Tiny Corporation's stock at December 31, 2016 was $2,170,000. The book values of Tiny Corporation's asset and liability accounts are considered as equal to fair values except for a Customer List whose value accounted for Huge Corporation's excess cost in each purchase. The Customer List had a remaining life of 10 years at January 1, 2016. Required: 1. If Huge Corporation sells its entire investment in Tiny Corporation on January 1, 2019, for $1,300,000 cash, what is the impact on Huge Corporation's income? Show all your calculations

Answer rating: 100% (QA)

W3 Amortization on Customer List per Annum 1200001... View the full answer