1Presents Inc acquired all of the outstanding common stock o

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Presents reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year.

Santa reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year. On the consolidated financial statements for 2017,

a)what amount should have been shown for Equity in Subsidiary Earnings?

A. $0.
B. $30,000.
C. $40,000.
D. $60,000.
E. $70,000.

b)what amount should have been shown for consolidated dividends?
A. $0.
B. $10,000.
C. $22,000.
D. $32,000.
E. $64,000.

c) What is the Investment in Santa Co. balance on Presents\' books as of December 31, 2018, if the equity method has been applied?

A. $286,000.
B. $295,000.
C. $276,000.
D. $344,000.
E. $324,000.

2)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017. On that date, Santa had a building with a book value of $200,000 and a fair value of $410,000. Santa had equipment with a book value of $350,000 and a fair value of $340,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2017 related to Santa’s building acquired by Presents?

A. $19,000.
B. $21,000.
C. $20,000.
D. $41,000.
E. 0.

Solution

Answer:-

(a)

C) $40,000

Explanation:- net income of s\'s in 2017 $40,000 is shown in equity subsidiary earnings

(b)

D) $32,000

Expalnation:- dividend paid by s\'s and p\'s in 2017 for $10,000 and $22,000 will be shown in consolidated statements.

(c)

A) $286,000

Expalanation:- value of common stock $257,000

add:- net income $40,000

less:- dividend of 2017 ($10,000)

less:- amortization ($19,000)

$268,0000

add:- net income $47,000

less:- dividend ( $10,000)

less:- amortization ( $19,000)

Investment in 2018 $286,000

(d)

B) $21,000

Expalanation:- increase in value of building $210,000 ($410,000-$200,000)

remaining useful life 10

expense = 210000/10 = $21,000