Sage, Inc. bought 40% of Adams Corp.'s outstanding common stock on January 2, 1991, for $400,000. The carrying amount of Adams' net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during 1991. During 1991, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 1991?

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Business

Buchanan

2 November, 10:29

Sage, Inc. bought 40% of Adams Corp.'s outstanding common stock on January 2, 1991, for $400,000. The carrying amount of Adams' net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during 1991. During 1991, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, 1991?

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Gracie Lindsey · Answer 1

income statment

48,000 gain on adams investment

(6,000) amortization expense

42,000 net

Explanation:

900,000 x 40% = 360,000

plant 90,000 x 40% = 36,000

inventory 10,000 x 40% = 4,000

Total goodwill 40,000

amortization of goodwill:

36,000/18 = 2,000

inventory 4,000

total 6,000

net income 120,000 x 40% = 48,000

cash dividends 20,000 x 40% = 8,000

balance sheet:

360,000 + 48,000 - 8,000 = 400,000 Adams Investment

40,000 - 6,000 = 34,000 Goodwill

net vlaue 434,000

income statment

48,000 gain on adams investment

(6,000) amortization expense

42,000 net