Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

On January 1, 2014, Ridge Road Company acquired 30 percent of the voting shares

ID: 2479723 • Letter: O

Question

On January 1, 2014, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc. for $4,600,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board which gave it the ability to significantly influence Sauk Trail’s operating and investing activities.

The January 1, 2014, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow:

Also as of January 1, 2014, Sauk Trail’s computing equipment had a remaining estimated useful life of seven years. The patented technology was estimated to have a three year remaining useful life. The trademark’s useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost.

What amount should Ridge Road report for its equity in Sauk Trail’s earnings on its income statements for 2014 and 2015?

What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2014 and 2015?

On January 1, 2014, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc. for $4,600,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board which gave it the ability to significantly influence Sauk Trail’s operating and investing activities.

Explanation / Answer

Income statement

2014

2015

1,990,000@30%

2,175,000@30%

Net income reported

597,000

652,500

Balance sheet

2014

2015

Investment opening

4,600,000

5,123,500

Add : net income

   597,000

652,500

Less: Dividend paid

(73,500)

(76,500)

Investment to be reported in balance sheet

5,123,500

5,699,500

Income statement

2014

2015

1,990,000@30%

2,175,000@30%

Net income reported

597,000

652,500

Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
Chat Now And Get Quote