E 2-3

CACULATE PERCENTAGE OWNERSHIP AND GOODWILL ON INVESTMENT

ACQUIRED DICERTLY FROM INVESTEE
Tre Corprations stockholders equity at December 31 consisted of the following (In
thousands):
Capital stock, $10 par,60,000 share issued and outstanding
Additional paid-in capital
150
Retained earnings
Total stockholders equity

$ 600

250
$1,000

On January 1, 2011, Bow Corporation purchased 20,000 previously unissued shares

of Tre stock directly from Tre for $500,000.
REQUIRED
1. Calculate Bow Corporations percentage ownship in Tre
2. Determine teh goodwill from Bows investment in Tre. Assume the book value of all
identifiable assets and liabilities equals the fair value.

E 2-4
CALCULATE INCOME FOR A MIDYEAR INVESTMENT
Car corporation pays $600,000 for a 30 percent interest in Med Corporation on July 1, 2011,
when the book value of Meds identifiable net assets equals fair value. Information relating to
Med follows (in thousands):
Capital stock, $1 par
Retained earnings
Total stockholders equity

December 31, 2010

$ 600
400
$1,000

Meds net income earned evenly throughout 2011

Meds dividends for 2011(paid $50,000 on
March 1 and $50,000 on September 1)
R E Q U I R E D : Calculate Cars income from Med for 2011.

E 2-5

December 31, 2011

$ 600
500
$1,000
$ 200
$ 100

CALCULATE INCOME AND INVESTMENT BALANCE ALLOCATION OF

EXCESS TO UNDERVALUED ASSETS
Dok Companyy acquired a 30 percent interest in Oak in January 1 for $2,000,000 cash.
Assume the cost of the investmet equals the fair value of Oaks net assets. Dok assigned the
$500,000 fair value over book value of the interest acquired to the following assets
Inventories
Building
Goodwill

$100,000 (sold in the current year)

$200,000 (4-year reamining life at January 1)
$200,000

During the year Oak reported net income of $800,000 and paid $200,000 dividends
REQUIRED
1. Determine Doks income from Oak.
2. Determine the December 31 balance of the Investment in Oak account.
E 2-6
JOURNAL ENTRY TO RECORD INCOME FROM INVESTEE WITH LOSS FROM
DISCONTINUED OPERATIONS
Man Coporation purchased a 40 percent interest in Nib Corporation for $1,000,000 on
January 1, at book value, when Nibs assets and liabilities werw recorded at their fair values.
During the year, Nib reported net income of $600,000 as follows (in thousands):
Income from continuing operations
Less: Loss from discontinued operations
Net income

$700
100
$600