On January 1, 2017, Stream Company acquired 30 percent of the outstanding voting shares of Q-Video, Inc., for $770,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $1.9 million and $700,000, respectively. A customer list compiled by Q-Video had an appraised value of $300,000, although it was not recorded on its books. The expected remaining life of the customer list was five years with straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered
Q-Video generated net income of $250,000 in 2017 and a net loss of $100,000 in 2018. In each of these two years, Q-Video declared and paid a cash dividend of $15,000 to its stockholders.
During 2017, Q-Video sold inventory that had an original cost of $100,000 to Stream for $160,000. Of this balance, $80,000 was resold to outsiders during 2017, and the remainder was sold during 2018. In 2018, Q-Video sold inventory to Stream for $175,000. This inventory had cost only $140,000. Stream resold $100,000 of the inventory during 2018 and the rest during 2019.
For 2017 and then for 2018, compute the amount that Stream should report as income from its investment in Q-Video in its external financial statements under the equity method.
Want to see the full answer?
Check out a sample textbook solutionChapter 1 Solutions
Soft Bound Version for Advanced Accounting 13th Edition
- On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forwardOn January 1, 2020, Stream Company acquired 26 percent of the outstanding voting shares of Q-Video, Inc., for $756,000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $1.8 million and $786,000, respectively. A customer list compiled by Q-Video had an appraised value of $276,000, although it was not recorded on its books. The expected remaining life of the customer list was eight years with straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill.  Q-Video generated net income of $276,000 in 2020 and a net loss of $138,000 in 2021. In each of these two years, Q-Video declared and paid a cash dividend of $12,000 to its stockholders.  During 2020, Q-Video sold inventory that had an original cost of $84,000 to Stream for $168,000. Of this balance, $84,000 was resold to outsiders during 2020, and the…arrow_forwardOn July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable assets and liabilities being measured at amounts equal to fair value. The table below shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss) 2015 200,000 2016 2,000,000 2017 2,500,000 2018 160,000 2019 300,000   How much will the Investment in Associate account be debited/credited in 2018? Group of answer choices P1,060,000 Cr. P1,035,000 Cr. No entry P40,000 Dr.arrow_forward
- On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable assets and liabilities being measured at amounts equal to fair value. The table below shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss) 2015 200,000 2016 2,000,000 2017 2,500,000 2018 160,000 2019 300,000   How much will the Investment in Associate account be debited/credited in 2018?  a. P1,035,000 Cr. b. No entry c. P40,000 Dr. d. P1,060,000 Cr.arrow_forwardOn July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable assets and liabilities being measured at amounts equal to fair value. The table below shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss) 2015 200,000 2016 2,000,000 2017 2,500,000 2018 160,000 2019 300,000   How much will the Investment in Associate account be debited/credited in 2019? Group of answer choices a. P75,000 Dr. b. No entry c. P960,000 Cr. d. P15,000 Dr.arrow_forwardOn January 1, 2015, P Corporation purchased 80% of S Company’s outstanding shares for ₱620,000. At that date, all of S Company’s assets and liabilities had market values approximately equal to their book values and no goodwill was included in the purchase price. The following information was available for 2015: Income from own operations of P Corporation, ₱150,000; Operating loss of S Company, ₱20,000. Dividends paid in 2015 by P Corporation, ₱75,000; by S Company to P Corporation, ₱12,000. On July 1, 2015, there was a downstream sale of equipment at a gain of ₱25,000. The equipment is expected to have a remaining useful life of 10 years from the date of sale. Also, on January 1, 2015, there was an upstream sale of furniture at a loss of ₱7,500. The furniture is expected to have a useful life of five years from the date of sale. Non-controlling interest is measured at fair market value. How much is the consolidated net income attributable to parent shareholders’ equity? A. ₱97,250B.…arrow_forward
- Pitino acquired 90 percent of Brey’s outstanding shares on January 1, 2016, in exchange for $342,000 in cash. The subsidiary’s stockholders’ equity accounts totaled $326,000 and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey’s accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey’s patented technology (six-year remaining life).Brey reported net income from its own operations of $64,000 in 2016 and $80,000 in 2017. Brey declared dividends of $19,000 in 2016 and $23,000 in 2017.Brey sells inventory to Pitino as follows:At December 31, 2018, Pitino owes Brey $16,000 for inventory acquired during the period.The following separate account balances are for these two companies for December 31, 2018, and the year then ended. Credits are indicated by parentheses.Answer each of the following questions:a. What was the annual amortization resulting…arrow_forwardOn January 2, 2013, Slurg Corporation paid $600,000 to acquire 60% interest in Padwaddy Inc. At that time, the book value of Padwaddy's stockholders' equity included $700,000 of common stock and $1,800,000 of retained earnings. All the excess purchase cost over the book value acquired was attributable to a patent with an estimated life of 10 years. Padwaddy paid $6,250 of dividends each quarter for the next two years, and reported net income of $180,000 for 2013 and $220,000 for 2014. Slurg recorded all activities related to their investment using the equity method.  Required: Calculate Slurg's income from Padwaddy for 2013. Calculate Slurg's income from Padwaddy for 2014. Determine the balance of Slurg's Investment in Padwaddy account on December 31, 2014.arrow_forwardOn May 31, 2011, Armstrong Company paid P3,500,000 to acquire all of the common stock of Hall Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the time of the acquisition:  Current assets          P900,000       Current liabilities         P600,000 Noncurrent assets 2,700,000        Long-term liabilities       500,000                                                             Stockholders’ equity             2,500,000                                                             Total liabilities and Total assets        P3,600,000          stockholders’ equity P3,600,000  It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was P2,800,000. At December 31, 2011, Hall reports the following balance sheet information:             Current assets                                                 P800,000            Noncurrent assets (including goodwill…arrow_forward
- On July 1, 2016, Killearn Company acquired 120,000 of the outstanding shares of Shaun Company for $15 per share. This acquisition gave Killearn a 20 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.  As of July 1, 2016, the investee had assets with a book value of $7 million and liabilities of $148,000. At the time, Shaun held equipment appraised at $581,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,235,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.  Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $566,000 in 2016, $593,400 in 2017,…arrow_forwardOn January 1, 2018, Sledge had common stock of $270,000 and retained earnings of $410,000. During that year, Sledge reported sales of $280,000, cost of goods sold of $145,000, and operating expenses of $55,000.  On January 1, 2016, Percy, Inc., acquired 80 percent of Sledge's outstanding voting stock. At that date, $75,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $35,000 to an undervalued building (with a 10-year remaining life).  In 2017, Sledge sold inventory costing $15,000 to Percy for $30,000. Of this merchandise, Percy continued to hold $9,000 at year-end. During 2018, Sledge transferred inventory costing $15,750 to Percy for $35,000. Percy still held half of these items at year-end.  On January 1, 2017, Percy sold equipment to Sledge for $19,500. This asset originally cost $31,000 but had a January 1, 2017, book value of $12,000. At the time of transfer, the equipment's remaining life was estimated to be five years.…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College