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Ace and Baskett Co: Equity methods

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Ace purchases 40% of Baskett Co. on Jan 1 for $500,000. Although Ace did not use it, the acquistion gave Ace the ability to apply significant influence to Baskett's operating and financing policies. Baskett reports assets on that date of $1,400,000 with liabilties of $500,000. One building with a seven-year life is undervalued on Baskett's books by $140,000. Also Baskett's book vlaue for it trademark (10-year life) is undervalued on Baskett's books by $210,000. During the year, Baskett reports net income of $90,000 while paying dividends of $30,000. What is the Investment in Basket Company balance (equity method) in Ace's finanical records as of Dec 31st?

a) $504,000
b) $507,600
c) $513,900
d) $516,000

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Solution Summary

Equity methods for Ace and Basketts Co are analyzed. The financial records are determined.

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Please find the solution attached

Net Value of Baskett = Assets - Liabilities

= $1,400,000 - $500,000
= $900,000

Purchase Price of Baskett Stock $500,000
Book Value of Baskett ($900,000 × ...

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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