On January 1, 2020, Summer 20 Company acquire Towel Corp. Below are the details. Towel...
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Accounting
On January 1, 2020, Summer 20 Company acquire Towel Corp. Below are the details.
Towel Corp maintained separate incorporation and Summer 20 used the equity method to account for the investment.
Any excess of cost over book value was assigned to goodwill.
1. What is the 2020 total annual amortization of allocations? 6 points (NOTE: pay close attention to the direction of fair value book value differences.)
2. What is the equity in Sub earnings? 5 points
3. What is the Consolidated Net Income 5 points
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| Percentage of voting common stock Summer 20 acquired | 100% | |||||
| Amount Summer 20 Company paid | $1,250,000 | |||||
| Towel Net Income 2020 | $115,000 | |||||
| Towel paid dividends during 2020 | $48,000 | |||||
| Summer 20 Net Income 2020 (not including Towel Corp) | $440,000 | |||||
| Towel Co | Book Value | Fair Value | ||||
| Current Assets | $115,000 | $115,000 | ||||
| Land | $72,000 | $192,000 | ||||
| Building (20 year life) | $250,000 | $310,000 | ||||
| Equipment (10 year life) | $555,000 | $530,000 | ||||
| Current Liabilities | $34,000 | $34,000 | ||||
| Long Term Liabilities | $120,000 | $120,000 | ||||
| Common Stock | $228,000 | |||||
| Additional Pd in Capital | $384,000 | |||||
| Retained Earnings | $216,000 | |||||
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