1. Kaye Company acquired 100% of Fiore Company on January 1, 2018. Kaye paid $1,
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Question
1. Kaye Company acquired 100% of Fiore Company on January 1, 2018. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2018 and paid dividends of $100.
Assume the equity method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations?
Multiple Choice
a. $400
b. $300
c. $380
d. $280
e. $480
2. Mittelstaedt Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $295,000 but had a fair value of $660,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover?
Multiple Choice
a. $660,000.
b. $177,000.
c. $365,000.
d. $483,000.
Explanation / Answer
The
Answer to Part (1) The right answer is option (c ) $ 380. Calculation: Net Income reported 400 Less: Amortization of excess consideration paid (Goodwill) 20 Equity Income 380 Answer to Part (2) The right answer is option (a) $ 660,000. All the assets which under consolidation perview should be valued at fair value as on the acquisition date. ACCORDINGLY, land in our case should be valued at fairvalue ($ 660,000).Related Questions
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