On January 1, 20X1, P Co. acquired 80% of the common stock of S Co. for $500,000. On this date, S Co.'s stockholders' equity included common stock of $50,000, additional paid-in-capital of $270,000, and retained earnings of $80,000 (for a total of $400,000).

S Co. book values and fair value were equal on January 1, 20X1 except as follows:

1) Equipment: Total fair value exceeded book value by $80,000. This equipment had a five-year life remaining on the January 1, 20X1 purchase date and is being depreciated on a straight-line basis with a $0 salvage value.

2) Copyrights: The total fair value of copyrights not recorded by S Co. on January 1, 20X1 was $70,000. The copyrights had a four-year life remaining on January 1, 20X1.

3) Inventory: Total fair value exceeded book value by $60,000 on January 1, 20X1. This inventory was sold during 20X1 by S Co.

Any additional excess of the price paid for the investment is attributable to goodwill.

During 20X1 and 20X2, P Co. has appropriately accounted for its investment in S Co. using the simple equity method.

Answer rating: 100% (QA)

On January 1 20X1 P Co acquired 80 of the common stock of S Co for 500000 On this date S Cos stockho... View the full answer