On January 1, 2017, Franklin Company acquires 80% of the outstanding common stoc

Question

On January 1, 2017, Franklin Company acquires 80% of the outstanding common stock of LaSalle, for a purchase price of $970,000. It was determined that the fair value of the noncontrolling interest in the subsidiary is $240,000. The book value of the LaSalle’s stockholders’ equity on the date of acquisition is $700,000 and its fair value of net assets is $1,100,000. The acquisition-date acquisition accounting premium (AAP) is allocated $250,000 to equipment with a remaining useful life of 10 years, and $150,000 to a patent with a remaining useful life of 6 years.

Assume that during the year ended December 31, 2017, LaSalle reports net income of $380,000 and pays dividends of $38,000. Franklin uses the equity method to account for its investment in LaSalle.

Determine the December 31, 2017 ending balance in Franklin Company’s pre-consolidation equity investment account.

Select one:

A. $1,262,000

B. $1,203,600

C. $1,243,600

D. $ 970,000

Explanation / Answer

Ending balance in Franklin Company’s pre-consolidation equity investment account on December 31st 2017 would be Option D ($9 70,000) because Preconsolidation balance will ALWAYS equal the purchase price.

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