The following are the financial statements of R Corp and B Inc . prepared on December 31,2021:
Question:
The following are the financial statements of R Corp and B Inc. prepared on December 31,2021:
R B
Misc. revenues 926,500 270,000
Interest revenue 3,600
Dividend revenue 10,500 _
$937,000 $273,600
Misc. expenses 736,400 229,600
Interest expense 3,600
Income tax expense 80,000 20,000
$820,000 249,600
Net income $117,000 $ 24,000
2021 RETAINED EARNINGS STATEMENTS
Bal,Jan1 $153,000 $ 72,000
Net income 117,000 24,000
270.000 96,000
Dividends 50,000 15,000
Bal.Dec31 $220,000 $ 81,000
BALANCE SHEETS – December 31, 2021
Misc. Assets $535,125 $211,000
Note Receivables 60,000
Investment in Bows 56,875 -------
$592,000 $271,000
Misc. Liabilities $212,000 $140,000
NotePayable 60,000
Common Shares 100,000 50,000
Retained Earnings 220,000 81,000
$592,000 $271,000
Other information:
1. R acquired70% of B on January 1, 2020 at a cost of $56,875. On this date B retained earnings amounted to $10,000, and the acquisition differential was entirely allocated to good will. Impairment tests conducted yearly since acquisition yielded a loss of $3,000 in 2021 and a further loss of$2,250 in 2020.
Ruses the cost method to account for the investment.
Use the entity theory for calculations.
2. The December 31, 2021 inventory of R contained purchases made from B amounting to $10,000. B sells to R at a 40% gross profit.
3. On July 1, 2021 R borrowed $60,000 from Band signed a note bearing interest at 12% per year.
4. Both companies pay income tax at a rate of 40%.
REQUIRED:
Calculate the balance in the “Investment in B” account as of December 31, 2021, if R had used the equity method.
Accounting Principles
ISBN: 978-1119048473
7th Canadian Edition Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak