Purchase Solution

Stuffy Sofa Corporation on January 1, 20X1. What amount of investment income will Easy Chair Company record during 20X1 under equity-method accounting?

Not what you're looking for?

Ask Custom Question

Easy Chair Company purchased 40 percent ownership of Stuffy Sofa Corporation on January 1, 20X1, for $150,000. Stuffy Sofa's balance sheet at the time of acquisition was as follows: (see balanced sheet attached)

Analysis
Computation of Account Balances
During 20X1 Stuffy Sofa Corporation reported net income of $30,000 and paid dividends of $9,000. The fair values of Stuffy Sofa's assets and liabilities were equal to their book values at the date of acquisition, with the exception of buildings and equipment, which had a fair value $35,000 above book value. All buildings and equipment had remaining lives of five years at the time of the business combination. The amount attributed to goodwill as a result of its purchase of Stuffy Sofa shares is not amortized.

Problem:
a) What amount of investment income will Easy Chair Company record during 20X1 under equity-method accounting?
b) What amount of income will be reported under the cost method?
c) What will be the balance in the investment account on December 31, 20X1, under (1) cost-method and (2) equity-method accounting?

Purchase this Solution

Solution Summary

Computations shown for you.

Solution Preview

(a) 40% of 30,000 or 12,000.

(b) 0 since under that method the parent company ...

Purchase this Solution


Free BrainMass Quizzes
Operations Management

This quiz tests a student's knowledge about Operations Management

Motivation

This tests some key elements of major motivation theories.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.