On January 1, 2020, Big company purchased 90,000 shares of Little company for $12.50 per share...

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On January 1, 2020, Big company purchased 90,000 shares of Little company for $12.50 per share (Big paid in cash). This acquisition gave Big company 25% ownership in Little company and the ability to apply significant influence Little. Big applies the equity method to account for the investment in Little. At the purchase date, Little had assets with a book value of $3,100,000 and liabilities of $75,000. In addition, Little had equipment that was undervalued by 364,000 with a 7-year remaining life and a copyright that was undervalued by 972,000 with a 20-year remaining life. Any additional excess fair value is attributable to goodwill. Little recognized income of 250,000 and declared and paid dividends of 80,000 in 2020. During 2020, Big sold inventory costing 125,000 to Little for 185,000. At the end of the year, 30,000 of inventory remained. Little financial information as of 1/1/20 Book value of assets: Book value of liabilities: Undervalued equipment (7-year life): Undervalued cpyright (20-year life): Little financial activity for 2020: Little Net income for 2020 Little Dividends for 2020 Inventory purchases from Big: Cost to Big Transfer price Ending inventory 3,100,000 75,000 364,000 972,000 250,000 80,000 125,000 185,000 30,000 Required: 1. Calculate annual amortization if necessary. 2. Calculate the gross profit deferral if necessary. 3. Prepare the journal entries for Big company related to its investment in Little for 2020 (please include journal entry descriptions). On January 1, 2020, Big company purchased 90,000 shares of Little company for $12.50 per share (Big paid in cash). This acquisition gave Big company 25% ownership in Little company and the ability to apply significant influence Little. Big applies the equity method to account for the investment in Little. At the purchase date, Little had assets with a book value of $3,100,000 and liabilities of $75,000. In addition, Little had equipment that was undervalued by 364,000 with a 7-year remaining life and a copyright that was undervalued by 972,000 with a 20-year remaining life. Any additional excess fair value is attributable to goodwill. Little recognized income of 250,000 and declared and paid dividends of 80,000 in 2020. During 2020, Big sold inventory costing 125,000 to Little for 185,000. At the end of the year, 30,000 of inventory remained. Little financial information as of 1/1/20 Book value of assets: Book value of liabilities: Undervalued equipment (7-year life): Undervalued cpyright (20-year life): Little financial activity for 2020: Little Net income for 2020 Little Dividends for 2020 Inventory purchases from Big: Cost to Big Transfer price Ending inventory 3,100,000 75,000 364,000 972,000 250,000 80,000 125,000 185,000 30,000 Required: 1. Calculate annual amortization if necessary. 2. Calculate the gross profit deferral if necessary. 3. Prepare the journal entries for Big company related to its investment in Little for 2020 (please include journal entry descriptions).

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Calculate the annual amortization for the undervalued equipment and copyright 1 Undervalued Equipment 7year life Amortization Expense Undervalued Amou... View the full answer