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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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    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 × ...

    Solution Summary

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