Question

At the start of 2071 Cowboy Corp. purchased 25% of Bebop Tech Inc. for $45 million. At the time of purchase, the carrying value of Bebop Tech's net assets was $75 million. The fair value of Bebop Tech's depreciable assets (5 year useful life remaining) was $25 million in excess of their book value. For this year, Bebop Tech reported a net income of $50 million and declared and paid $25 million in dividends. What amount will Cowboy Corp. recognize as additional depreciation at the end of 2071?

A. $6.25 Million
B. $5 Million
C. $1 Million
D. $125 Million

Answer 1

B. $5 Million

Step-by-step explanation:

The amount of additional depreciation that Cowboy Corp. would recognize in the year 2071 is the excess of Bebop Tech Inc.'s fair value of assets over the book value divided by the useful life remaining which is 5 years

The excess of fair value of assets over book value was $25 million

The remaining useful in respect of the assets was 5 years

The additional depreciation recognizable=$25 milion

The additional depreciation =$25 million/5

The additional depreciation=$5 million