On January 1, 2018, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2018, Gold reported net income of $125,000 and paid cash dividends of $25,000. What is the carrying value of Green's investment in Gold at December 31, 2018?

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Business

Talan Buck

21 February, 02:42

On January 1, 2018, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2018, Gold reported net income of $125,000 and paid cash dividends of $25,000. What is the carrying value of Green's investment in Gold at December 31, 2018?

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Rebekah Gallagher · Answer 1

The carrying value of Green's investment in Gold at December 31, 2018 is $265,000

Explanation:

The computation of the carrying value of the Green's investment is shown below:

= Purchase of common stock - net income share percentage - Dividend paid share percentage - amortization of the intangible asset

where,

Purchase of common stock is $300,000

Net income percentage = Net income * share percentage

= $125,000 * 20%

= $25,000

Dividend paid share percentage = Dividend paid * share percentage

= $25,000 * 20%

= $5,000

Amortization of intangible asset = (Purchase of common stock - book value) : (remaining useful life)

= ($300,000 - $275,000) : 5 years

= $25,000 : 5 years

= $5,000

Now put these values to the above formula

So, the value would equal to

= $300,000 - $25,000 - $5,000 - $5,000

= $265,000