1682 Words7 Pages

Reporting Intercorporate Interests (Equity vs Cost Method) 1. On January 1, 2007, Rotor Corporation acquired 30 percent of Stator Company’s Stock for $150,000. On the acquisition date, Stator reported Net assets of $450,000 valued at historical cost and %500,000 stated at fair Value. The difference was due to the increased value of buildings with a remaining life of 15 years. During 2007 and 2008 Stator reported Net Income of $25,000 and $15,000 and paid dividends $10,000 and $12,000, respectively. Rotor uses the equity method a. What amount of differential will be amortized annually b. What will be the balance in the investment account on Dec 31, 2007? c. What amount of investment income will be reported by Rotor for the year 2007? d. What amount will Rotor report as the balance in investment account on Dec 31, 2007? e. What amount of investment income will be reported by Rotor for 2008? f. Using Cost Method, what would have been the balance in the investment account on Dec 31, 2008?
2. On January 1, 2007, Fire wire Company acquired 40 percent of Browser Company's common stock. For this acquisition, Fire wire paid $45,000 above book value. The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition. During 2007 and 2008, Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000, respectively. Fire wire reported a balance in its investment account of $230,000 on December 31, 2008. It uses the equity method in accounting for this investment. g. What is the annual amount of amortization of differential over the ten year period? h. In 2007, will Fire Wire report and increase or a decrease in the investment account balance? How much? i. In 2008, will Fire Wire report and increase or a

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