Question

Midpark Co.purchased a 30% interest in Cycling Pros, Inc. on December 31, 2020 for $1,000,000. On that date, Cycling Pros' net assets had a book value of $2,000,000 and fair value of $3,000,000.

Answer 1

The question pertains to a business accounting scenario where a company purchases a significant stake in another company, and the student is expected to understand the implications of book value versus fair value in financial accounting.

Step-by-step explanation:

The student's question involves the accounting entry when one company purchases a stake in another company. This topic falls under the subject of Business, more specifically, financial accounting which is often studied at the college level. When Midpark Co. purchased a 30% interest in Cycling Pros, Inc., the difference between the book value and the fair value of the net assets at acquisition must be considered. This may involve accounting treatments such as goodwill or fair value adjustments. The investment is significant (30%) but does not represent control, indicating that this might be an equity method investment.