Allocation schedule and computations (excess cost over fair value)
John Corporation acquired a 70 percent interest in Jojo Corporation on April 1, 2011, when it purchased 14,000 of Jojo’s 20,000 outstanding shares in the open market at $13 per share. Additional costs of acquiring the shares consisted of $10,000 legal and consulting fees. Jojo Corporation’s balance sheets on January 1 and April 1, 2011, are summarized as follows (in thousands):
|
January 1 (per books) |
April 1 (per books) |
April 1 (fair values) |
|
|
Cash |
$ 40 |
$ 45 |
$ 45 |
|
Inventories |
35 |
60 |
50 |
|
Other current assets |
25 |
20 |
20 |
|
Land |
30 |
30 |
50 |
|
Equipment—net |
100 |
95 |
135 |
|
Total assets |
$230 |
$250 |
$300 |
|
Accounts payable |
$ 45 |
$ 40 |
$ 40 |
|
Other liabilities |
15 |
20 |
20 |
|
Capital stock, $5 par |
100 |
100 |
|
|
Retained earnings January 1 |
70 |
70 |
|
|
Current earnings |
20 |
||
|
Total liabilities and equity |
$230 |
$250 |
ADDITIONAL INFORMATION
1. The overvalued inventory items were sold in September 2011.
2. The undervalued items of equipment had a remaining useful life of four years on April 1, 2011.
3. Jojo’s net income for 2011 was $80,000 ($60,000 from April to December 31, 2011).
4. On December 1, 2011, Jojo declared dividends of $2 per share, payable on January 10, 2012.
5. Any unidentified assets of Jojo are not amortized.
REQUIRED
1. Prepare a schedule showing how the difference between John’s investment cost and book value acquired should be allocated to identifiable and/or unidentifiable assets.
2. Calculate John’s investment income from Jojo for 2011.
3. Determine the correct balance of John’s Investment in Jojo account at December 31, 2011.