On January 1, 2016, Green Corporation purchased 25% of the outstanding voting co

ID: 2595926 • Letter: O

Question

On January 1, 2016, Green Corporation purchased 25% of the outstanding voting common

stock of Gold Company for $250,000. The book value of the acquired shares was $200,000.

The excess of cost over book value is attributable to an intangible asset on Gold's books that

was undervalued and had a remaining useful life of five years. For the year ended December

31, 2016, Gold reported net income of $100,000 and paid cash dividends of $20,000. What

is the carrying value of Green's investment in Gold at December 31, 2016?

A. $277,500

B. $250,000

C. $270,000

D. $267,500

Investment in Gold Company as on January 1, 2016 = 250000

Less: Depreciation in assets of Gold company = 50000/5 *25% = 2500

Add: Share in cash dividend = 20000*25% = 5000

Add: Share in net income = 100000*25% = 25000

The carrying value of Green's investment in Gold at December 31, 2016 = 277500

Answer is A. $277,500

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