Assume that, on January 1, 2018, Sosa Enterprises paid $3,000,000 for its invest
ID: 2412620 • Letter: A
Question
Assume that, on January 1, 2018, Sosa Enterprises paid $3,000,000 for its investment in 60,000 shares of Orioles Co. Further, assume that Orioles has 120,000 total shares of stock issued and estimates an eight-year remaining useful life and straight-line depreciation with no residual value for its depreciable assets.
At January 1, 2018, the book value of Orioles' identifiable net assets was $7,000,000, and the fair value of Orioles was $10,000,000. The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable assets. Goodwill was not part of this transaction.
The following information pertains to Orioles during 2018:
Net Income $600,000
Dividends declared and paid $360,000
Market price of common stock on 12/31/2018 $80/share
What amount would Sosa Enterprises report in its year-end 2018 balance sheet for its investment in Orioles Co.?
Answer:
$3,000,000 + (30% x $600,000 net income) (30% x $360,000 dividends) (30% x $1,200,000/8 yrs. of additional depreciation)
Please explain where the following numbers came from:
How is $3,000,000 calculated? Where did 30% come from? How is $1,200,000 calculated?
Explanation / Answer
*Increase in Value of Asset(100Lac-70Lac):- 30 Lac
Allocation for LAnd: 18 Lac
Other Depreciable Asset (30-18):- 12 Lac.
Note: Answer mentioned above is not correct.
Computation of Amount Reported in Balance Sheet Acquistion price for 50% share (60000/120000*100) $3,000,000 Add: Net income (600000*50%) 300000 Less: dividend (360000*50%) -180000 Less: excess depreciation (1200000/8 yrs*50%)* -75000 ans Investment reported in Balance Sheet 2016 $3,045,000