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    Zen Company accounting problem

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    Zen Company reports net income of $140,000 each year and pays an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2001. On that date, Werry Co. purchases 40 percent of the outstanding stock for $600,000, which gives Werry the ability to significantly influence Zen. At the purchase date, goodwill was assigned a useful life of 20 years. On December 31, 2003, what is the Investment in Zen balance in Werry's financial records?

    Purchase Price of Zen Stock 600,000
    Book Value of Zen Stock ($1,200,000 x 40%) -480,000
    Goodwill 120,000
    Life of Goodwill 20 years
    Annual Amortization (for 2001 only) 6,000

    Cost of January 1, 2001 600,000
    2001 Income Accrued ($140,000 x 40%) 56,000
    2001 Amortization (above) -6,000
    2002 Dividend Collected ($50,000 x 40%) -20,000
    2002 Income Accrued ($140,000 x 40%) 56,000
    2002 Amortization 0
    2002 Dividend Collected ($50,000 x 40%) -20,000
    2003 Income Accrued ($140,000 x 40%) 56,000
    2003 Amortization (above) 0
    2003 Dividend Collected ($50,000 x 40%) -20,000
    Investment in Zen, 12/31/03 702,000

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    https://brainmass.com/business/accounting/zen-company-accounting-problem-91681

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