ABC Corp. acquired a 60% interest in DEF on January 1, 2021 for P468,000 when DEF's net assets had a book value and fair value of P790,000. During 2021, ABC sold inventory items cost P780,000 to DEF for P1,040,000 and DEF's inventory at December 31, 2021 included one-fourth of this merchandise. ABC reported separate income from its own operations of P488,000, and DEF reported a net loss of P195,000 for 2021. Consolidated net income for ABC and DEF for 2021 is:

ABC Corp. acquired a 60% interest in DEF on January 1, 2021 for P468,000 when DEF's net assets had a book value and fair value of P790,000. During 2021, ABC sold inventory items cost P780,000 to DEF for P1,040,000 and DEF's inventory at December 31, 2021 included one-fourth of this merchandise. ABC reported separate income from its own operations of P488,000, and DEF reported a net loss of P195,000 for 2021. Consolidated net income for ABC and DEF for 2021 is:

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 15CE

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On April 1, 2021, BBC Co. acquired a 30% stake in LTI Inc. for $ 100,000. This amount includes $ 40,000 that represents the excess of the fair market value over the book value of the identifiable net assets that LTI Inc. had on its books as of that date. Of this difference of $ 40,000, BBC attributes that $ 15,000 is due to inventory that was sold in its entirety during 2021, and the remaining $ 25,000 is due to goodwill. On the other hand, LTI generated a net income of $ 20,000 for 2021, and paid dividends of $ 2,500 for each quarter. As a consequence of these effects on LTI's books and financial statements, BBC will recognize investment income (or loss) for a. $4,500 b. $1,125 c. $3,450 d. ($10,500)
ABC Corp. Acquired a 70% interest in GHI Corp on January 2, 2021 for P936,000 when GHI’s net assets had a book value and fair value of P1,580,000. During 2021, ABC sold inventory items that cost P1,560,000 to GHI for P2,080,000 and GHI’s inventory at December 31, 2021 included 1/2 of the merchandise. DEF also sold to ABC an inventory for P30,000 with a cost of P25,000, 70% were sold to unaffiliated customers. ABC Corp. Reported separate income from its own operation of P1,170,000 and GHI reported a net loss of P390,000. Compute for the consolidated net income.
On January 1, 2021, Alamar Corporation acquired a 41 percent interest in Burks, Inc., for $233,000. On that date, Burks’s balance sheet disclosed net assets with both a fair and book value of $320,000. During 2021, Burks reported net income of $82,000 and declared and paid cash dividends of $28,000. Alamar sold inventory costing $25,000 to Burks during 2021 for $35,000. Burks used all of this merchandise in its operations during 2021. Prepare all of Alamar’s 2021 journal entries to apply the equity method to this investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On January 1, 2021, Alamar Corporation acquired a 36 percent interest in Burks, Inc., for $218,000. On that date, Burks’s balance sheet disclosed net assets with both a fair and book value of $349,000. During 2021, Burks reported net income of $76,000 and declared and paid cash dividends of $25,000. Alamar sold inventory costing $25,000 to Burks during 2021 for $36,000. Burks used all of this merchandise in its operations during 2021. Prepare all of Alamar’s 2021 journal entries to apply the equity method to this investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. Record the acquisition of a 36 percent interest in Burks. 1b. Record the 36 percent income earned by Alamar from this investment. 1c. Record the investee dividend declaration. 1d. Record the collection of dividend from investee.