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Ephraim Corporation acquired 80 percent of Lilac Corporation for $200,000 cash. Lilac reported net income of $25,000 each year and dividends of $5,000 each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Lilac reported common stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a market value of $100,000, and equipment with a book value of $40,000 and a market value of $48,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of eight years. All depreciable assets held by Lilac at the date of acquisition had a remaining economic life of eight years. Ephraim uses the equity method in accounting for its investment in Lilac.

Based on the preceding information, what balance would Ephraim report as its investment in Lilac at January 1, 20X5?

a. $236,000
b. $248,000
c. $260,000
d. $300,000

Sagot :

Answer:

a. $236,000

Explanation:

Ephraim acquired 80% of Lilac corporation.

The consideration paid was $200,000 in cash

Lilac had income of $25,000 and paid $5,000 of dividend.

Land and equipment had book value different from market value.

market values are considered for the investment

$100,000 - $90,000 + $48,000 + $25,000 -  $40,000 = $43,000

$43,000 * 80% = $34,000

Total investment value = $200,000 + $34,000 + dividend NCI

Total Investment Value = $236,000

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