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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 2, 2019, Portela Inc. bought 30% of the outstanding common stock of Bracero Corporation for $258,000 cash. Portela accounts for this investment by the equity method. At the date of acquisition of the stock, Bracero’s property, plant, and equipment had a fair value in excess of its book value of $150,000. Bracero’s property, plant, and equipment has a remaining life of 10 years. Bracero’s net income for the year ended December 31, 2019, was $180,000. During 2019, Bracero declared and paid cash dividends of $20,000. On December 31, 2019, Portela should have carried its investment in Bracero in the amount of:

  1. a. $258,000
  2. b. $301,500
  3. c. $306,000
  4. d. $312,000

To determine

Calculate the amount that Incorporation P should have carried its investment in Corporation B.

Explanation

Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

Calculate the amount that Incorporation P should have carried its investment in Corporation B.

Investment amount in Corporation B}=(Purchase price+[(Interest rate×Net income during the year 2019)(Interest rate×Cash dividends)(Interest rate×Value as of acquisitionRemainning life)])=$258,000+[(0

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