On January 1, 2013, Compton Co. paid $20,000 for a 20% interest in General Enter

Question

On January 1, 2013, Compton Co. paid $20,000 for a 20% interest in General Enterprises. General's stockholders' equity amounted to $40,000 on that date. The excess of purchase price over book values was due to an unrecorded patent valued at $60,000 with a 10-year life. During 2013, General Enterprises reported income of $10,000 and paid dividends of $2,000. During 2014, it reported income of $15,000 and dividends of $3,000. Assume that Compton has significant influence over the operations of General. Required: a. What is the amount of goodwill? b. What is Equity Income for 2013? c. What is the balance in the Equity Investment account at December 31, 2013? d. What is Equity Income for 2014? e. What is the balance in the Equity Investment account at December 31, 2014?

Explanation / Answer

a. Goodwill = 20,000 – (40,000 x 20%) = $12,000
b. Equity Income 2014 = $2,000 (10,000*20%)
c. Balance in equity investment account on December 31, 2013 =
10,000 – 2,000 = $8,000

d. Calculate Equity Income for 2014?

$3,000 (15,000*20%)

e. Balance in equity investment account on December 31, 2014 =
8,000 – 3,000 = $5,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

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