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P 2-1 Computations for a midyear purchase (investee has a discontinued operations gain) Pop Corporation paid $686,000 for a 30 percent interest in Son Corporation's outstanding voting stock on April 1, 2016. At December 31, 2015, Son had net assets of $2,000,000 and only common stock outstanding. During 2016, Son declared and paid dividends of $40,000 each quarter on March 15, June 15, September 15, and December 15 ($160,000 in total). At April 1, 2016, the book value of assets and liabilities equals the fair value. Son's 2016 income was reported as follows: Income from continuing operations: $240,000 Discontinued operations gain, December 2016: $80,000 Net income: $320,000 Required: Determine the following items for Pop: 1. Goodwill from the investment in Son 2. Income from Son for 2016 3. Investment in Son account balance at December 31, 2016 4. Pop's equity in Son's net assets at December 31, 2016 5. The amount of discontinued operations gain that Pop will show on its 2016 income statement

          P 2-1 Computations for a midyear purchase (investee has a discontinued operations gain)

Pop Corporation paid $686,000 for a 30 percent interest in Son Corporation's outstanding voting stock on April 1, 2016. At December 31, 2015, Son had net assets of $2,000,000 and only common stock outstanding. During 2016, Son declared and paid dividends of $40,000 each quarter on March 15, June 15, September 15, and December 15 ($160,000 in total). At April 1, 2016, the book value of assets and liabilities equals the fair value. Son's 2016 income was reported as follows:

Income from continuing operations: $240,000
Discontinued operations gain, December 2016: $80,000
Net income: $320,000

Required:

Determine the following items for Pop:

1. Goodwill from the investment in Son
2. Income from Son for 2016
3. Investment in Son account balance at December 31, 2016
4. Pop's equity in Son's net assets at December 31, 2016
5. The amount of discontinued operations gain that Pop will show on its 2016 income statement

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Added by Xavier D.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert Akash M

07/10/2023

Step 1

Goodwill from the investment in Son: Pop paid $686,000 for a 30% interest in Son. At the time of purchase, Son had net assets of $2,000,000. The fair value of the 30% interest in Son's net assets is 30% * $2,000,000 = $600,000. Since Pop paid $686,000 for this 30% Show more…

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P 2-1 Computations for a midyear purchase (investee has a discontinued operations gain) Pop Corporation paid $686,000 for a 30 percent interest in Son Corporation's outstanding voting stock on April 1, 2016. At December 31, 2015, Son had net assets of $2,000,000 and only common stock outstanding. During 2016, Son declared and paid dividends of $40,000 each quarter on March 15, June 15, September 15, and December 15 ($160,000 in total). At April 1, 2016, the book value of assets and liabilities equals the fair value. Son's 2016 income was reported as follows: Income from continuing operations: $240,000 Discontinued operations gain, December 2016: $80,000 Net income: $320,000 Required: Determine the following items for Pop: 1. Goodwill from the investment in Son 2. Income from Son for 2016 3. Investment in Son account balance at December 31, 2016 4. Pop's equity in Son's net assets at December 31, 2016 5. The amount of discontinued operations gain that Pop will show on its 2016 income statement

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Transcript

00:04 Determine the required items for pop corporation to determine the required items for pop corporation regarding its investment starting.

00:29 It's best man.

00:35 We need to calculate the following versus goodwill from the investment in sun.

00:41 First is goodwill from the investment in sun on the investment in sun.

00:57 So goodwill is the access of the purchase price over the fair value of net assets required.

01:04 So purchase price is dollar six lakh eighty six thousand and the fair value of net assets required is twenty lakhs.

01:14 So goodwill equals to purchase price minus fair value purchase price minus fair value of net assets.

01:31 So which is equals to dollar six lakh eighty six thousand.

01:44 Minus dollar which is equals to minus dollar.

01:55 So negative because negative because it represents a bargain purchase.

02:00 So therefore the goodwill from the investment in sun is minus dollar minus dollar one lakh thirty four thirteen lakh fourteen thousand.

02:12 So first is income from sun for 2016.

02:19 Income from sun for 2016 income from sun is determined by applying the equity method which recognizes the investors shares of the investees earning.

02:33 So income from continuing operations.

02:35 Is dollar two lakh forty thousand pop share that is the 30 % ownership.

02:42 So income from continuing operations.

02:52 Is dollar two lakh forty thousand pops share is 30 % of the ownership.

03:03 So dollar two lakh forty thousand into 30 % is called dollar seventy two thousand.

03:14 Then is continued operations gain is dollar eighty thousand is continued operation gains dollar eighty thousand in pop share 30 % ownership is of share is dollar eighty thousand into 30 % is a good dollar twenty four thousand...

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