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The Dividend income/investment income for 20x1:   A. 88,500  B. 65,000 C. 61,600 D. 40,000

The Dividend income/investment income for 20x1:   A. 88,500  B. 65,000 C. 61,600 D. 40,000

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 30E
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The Dividend income/investment income for 20x1:

 

A. 88,500 

B. 65,000

C. 61,600

D. 40,000

PROBLEM 1 On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An undervalued asset attributable to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities of S Company had book value approximated their fair market value. On January 1, 20x1 P's common stock and retained earnings amounted to P1,000,000 and P800,000, respectively,while S Company's retained earnings is P600,000. The 20x1 net income and dividends using cost (or initial value) method that was as follows; Net Income P Company S Company P340,000 P150,000 Dividends P100,000 P50,000 On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The gain on the sale is included in the net income of S Company indicated above. The equipment is expected to have to have a remaining useful life of five years from the date of sale. On September 30, 20x1, P Company sold machinery with a book value of P40,000 to S Company for P75,000. The gain on the sale is also included in the net income of P company indicated above. The machinery is expected to last for ten (10) years from the date of sale.
Transcribed Image Text:PROBLEM 1 On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An undervalued asset attributable to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities of S Company had book value approximated their fair market value. On January 1, 20x1 P's common stock and retained earnings amounted to P1,000,000 and P800,000, respectively,while S Company's retained earnings is P600,000. The 20x1 net income and dividends using cost (or initial value) method that was as follows; Net Income P Company S Company P340,000 P150,000 Dividends P100,000 P50,000 On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The gain on the sale is included in the net income of S Company indicated above. The equipment is expected to have to have a remaining useful life of five years from the date of sale. On September 30, 20x1, P Company sold machinery with a book value of P40,000 to S Company for P75,000. The gain on the sale is also included in the net income of P company indicated above. The machinery is expected to last for ten (10) years from the date of sale.
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