Equity Method: Cost Greater than Book Value
On January 1 of Year 1, Dr. idge Company purchased 2,500 shares of the 10,000 outstanding shares of Company C for a total of $100,000. At the time of the purchase, the book value of Company C’s equity was $300,000.Company C assets having a market value greater than book value at the time of the acquisition were as follows:
|
|
Book |
Market |
Remaining |
|
Asset |
Value |
Value |
Life |
|
Inventory |
$ 40,000 |
$ 50,000 |
less than 1 year |
|
Building |
200,000 |
250,000 |
10 years |
|
Goodwill |
0 |
40,000 |
indefinite |
Company C’s net income in Year 1 was $70,000. Dividends per share paid by Company C were $2.00 in Year 1. (1) Make all journal entries necessary on Dr. idge’s books to record its investment in Company C in Year 1. Assume that the goodwill is not impaired. (2) Compute the Year 1 ending balance in Dr. idge Company’s Investment in Company C account.