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Advanced Chapters 1-3

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  • 1. Open Ended
    30 seconds
    1 pt
    On January 3, 2018, Matteson Corporation acquired 40 percent of the outstanding common stock of O'Toole Company for $1,443,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $852,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O'Toole reported net income of $262,000 and declared cash dividends of $50,000. At December 31, 2018, what should Matteson report as its investment in O'Toole under the equity method?
  • 2. Open Ended
    30 seconds
    1 pt
    On January 1, 2018, Fisher Corporation paid $2,327,000 for 34 percent of the outstanding voting stock of Steel, Inc., and appropriately applies the equity method for its investment. Any excess of cost over Steel's book value was attributed to goodwill. During 2018, Steel reports $652,000 in net income and a $1,008,000 other comprehensive income loss. Steel also declares and pays $25,000 in dividends. What amount should Fisher report as its Investment in Steel on its December 31, 2018, balance sheet? What amount should Fisher report as Equity in Earnings of Steel on its 2018 income statement?
  • 3. Open Ended
    30 seconds
    1 pt
    On January 1, 2017, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,100,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail's board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail's board which gave it the ability to significantly influence Sauk Trail's operating and investing activities. The January 1, 2017, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Cash and receivables $130,000 $130,000 Computing equipment 5,180,000 6,020,000 Patented technology 120,000 4,040,000 Trademark 170,000 2,040,000 Liabilities (205,000) (205,000) Also as of January 1, 2017, Sauk Trail's computing equipment had a seven-year remaining estimated useful life. The patented technology was estimated to have a four-year remaining useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to goodwill any unidentified excess cost. During the next two years, Sauk Trail reported the following net income and dividends: 2017 $ 1,840,000 $ 170,000 2018 2,025,000 180,000 How much of Ridge Road's $3,100,000 payment for Sauk Trail is attributable to goodwill? What amount should Ridge Road report for its equity in Sauk Trail's earnings on its income statements for 2017 and 2018? What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets at the end of 2017 and 2018?
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