Question

Player Corporation purchased 100 percent of Scout Company's common stock on January 1, 20X5, and paid $28,000 above book value. The full amount of the additional payment was attributed to amortizable assets with a life of eight years remaining at January 1, 20X5. During 20X5 and 20X6, Scout reported net income of $33,000 and $6,000 and paid dividends of $15,000 and $12,000, respectively. Player uses the equity method in accounting for its investment in Scout and reported a balance in its investment account of $161,000 on December 31, 20X6.Required:Compute the amount paid by Player to purchase Scout shares.

Answer 1

$156,000

Explanation:

The computation of the amount paid by Player to purchase Scout shares is shown below:-

Particulars Amount

Investment Balance on Dec. 31, 2016 $161,000

Increase Account Balance during 2015

Less : Income of 2015 ($33,000)

Add : Amortized Difference

amount ($28,000 × 8 years) $3,500

Add : Dividend of 2015 $15,000 ($14,500)

Decrease Account Balance during 2016 :-

Less : Income of 2016 ($6,000)

Add : Amortized Difference Amount

($28,000 ÷ 8 years) $3,500

Add : Dividend of 2015 $12,000 $9,500

Investment Balance on Date of purchase $156,000