Problem 6 Calculating the Mid-Year Acquisition On July 1, 2011, PAL Corporation purchased 6,000 shares of SABB's common voting stock in cash at $16 per share. On this date, SABB's equity consisted of $100,000, share capital (the nominal value of the share is $10), $20,000 in retained earnings from previous years, and $10,000 in current earnings (for the 2011 half year). SABB's income for the year 2011 was $20,000, and dividends were paid in the amount of $12,000 on November 1, 2011. If you know that the book values of the assets and liabilities of SABB are equivalent to their fair value on July 1, 2011, and that any differences between the cost of investments and the book value acquired must be allocated to equipment that is depreciated over a period of 10 years. Calculate the correct values for each of the following two items using the equity method to account for (BAL) investments: 1. Income of (PAL) company from its investments in (Saba) for the year ended on December 31, 2011.
Problem 6 Calculating the Mid-Year Acquisition On July 1, 2011, PAL Corporation purchased 6,000 shares of SABB's common voting stock in cash at $16 per share. On this date, SABB's equity consisted of $100,000, share capital (the nominal value of the share is $10), $20,000 in retained earnings from previous years, and $10,000 in current earnings (for the 2011 half year). SABB's income for the year 2011 was $20,000, and dividends were paid in the amount of $12,000 on November 1, 2011. If you know that the book values of the assets and liabilities of SABB are equivalent to their fair value on July 1, 2011, and that any differences between the cost of investments and the book value acquired must be allocated to equipment that is depreciated over a period of 10 years. Calculate the correct values for each of the following two items using the equity method to account for (BAL) investments: 1. Income of (PAL) company from its investments in (Saba) for the year ended on December 31, 2011.
Corporate Financial Accounting
14th Edition
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
ChapterD: Investments
Section: Chapter Questions
Problem D.7EX
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