Question

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
The 2010 total amortization of allocations is calculated to be

Answer 1

The total amortization of allocations for Kaltop Co. in 2010 cannot be determined without specific data on the values and useful lives of the acquired assets. It involves calculating the excess of the purchase price over the book value, which is then allocated and amortized over the useful lives of identifiable assets.

Step-by-step explanation:

The student's question pertains to the equity method of accounting for an investment in an associate. When using the equity method, the investor recognizes their share of the investee's net income and adjusts this for any amortization of identified excess payment over the investee's book value at acquisition. As the question does not provide specific details on the acquired assets, liabilities, or the fair value and book value differences that result in amortization, a generic formula to calculate the total amortization of allocations would involve determining the portion of the purchase price that was attributed to identifiable assets and liabilities, assessing their fair values, and then amortizing this excess over the useful lives of the acquired assets.

For the year 2010, the correct amortization for Kaltop Co. would be related to the excess of the purchase price over Kaltop's book value that was allocated to tangible and intangible assets and then amortized over their respective useful lives. Without specific data on the values and useful lives, the total amortization amount cannot be conclusively determined.