2 Equity Investments (14 points) Cugar, Inc. purchased 30% of Buffalo, Co.\'s ou

Question

2 Equity Investments (14 points) Cugar, Inc. purchased 30% of Buffalo, Co.'s outstanding common stock by issuing Cougar's common stock worth $120,000 (the total par value of issued shares was $5,000) and paying $40,000 in cash on December 31, 2017; the stock and cash were paid to acquire outstanding stock in Buffalo Corp. Below is the balance sheet for Buffalo (and the fair value of Buffalo's assets and liabilities) before the purchase: BUFFALO, INC BALANCE SHEET ON 12/31/17 Book Value S 120,000 Fair Value Cash Accounts Receivable (net)90,0000,000 Inventory Land PPRE 20,000 80,000 80,000 374,000 75,000 60,000 355.000 Patent Total 7020,000 S 60,000 60,000 6,000 160,000 Current Liabilities Long-term debt Common stock APIC Retained earnings 80,000 190,000 210,000 $700,000 Total During 2018, Buffalo generated $50,000 in net income and declared and paid $40,000 in dividends. Required: a) Make Cougar's journal entry to record the acquisition on 12/31/17 and determine the implied goodwill in the acquisition. (5 pts) Make all Cougar's required journal entries for 2018, assuming the differential related to Inventory will clear in 2018 (FIFO), the estimated remaining economic life of the b) depreciable assets is ten years, and the economic life of the patent is four years.(9 pts)

Explanation / Answer

a Journal entry to record the acquisition on 31/12/2017 Investment in Buffalo. Co. $160,000 Common Stock $5,000 APIC $115,000 Cash $40,000 Implied Goodwill in the acquisition Consideration paid for acquisition $160,000 Less: Fair value of net identifible assets acquired $456,000 30% of total assets $136,800 Implied Goodwill in the acquisition $23,200 b Required journal entries for 2018 1 Investment in Buffalo. Co. $15,000 Equity Income $15,000 (To record 30% share of income) 2 Dividend $12,000 Investment in Buffalo. Co. $12,000 (to record 30% dividend income) 3 Amortization expense $5,000 Patent $5,000 (to record amortization of patent over 4 years) Inventory $5,000 Cost of goods sold $5,000 PPE $1,900 Depreciation expense $1,900

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.