On January 1, 2017, Figland Company purchased for cash 40% of Irene Company’s 30
ID: 2578233 • Letter: O
Question
On January 1, 2017, Figland Company purchased for cash 40% of Irene Company’s 300,000 shares of voting common stock for $1,800,000. At the time, 40% of the book value of the underlying equity in Irene’s net assets was $1,400,000; $50,000 of the excess was attributed to the excess of fair value over book value of inventory, which Irene accounts for using the first-in, first-out (FIFO) inventory method; and $150,000 was attributed to undervaluation of depreciable assets with an average remaining life of 10 years. The remainder was attributed to implicit goodwill. As a result of this transaction, Figland can exercise significant influence over Irene’s operating and financial policies. Irene’s net income for the year ended December 31, 2017, was $600,000. During 2017, Irene paid $325,000 in dividends to its stockholders.
Required: 1. How much income would Figland report on its 2017 income statement for its investment in Irene?
2. What would be the balance in the Investment in Irene Company account on December 31, 2017?
3.Create a consolidated Balance sheet as of Jan 1,2017
Explanation / Answer
1. Figland will report $190,000 income for its investment in Irene.
Working:
2.
Net income of Irene for 2017 600000 40% share of Figland company 240000 Less: Excess fair value for inventory -50000 Income from irene to be reported by Figland 190000