Reference no: EM132871018

Question -

Q1. During the start of the current year, Meta Inc. bought 40% of the ordinary shares of another entity for $3,500,000 when the net assets acquired amounted to $7,000,000. At the acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which has a fair value of $1,500,000 greater than carrying amount and inventory whose fair value was $500,000 greater than cost. The equipment has a remaining life of four years and the inventory was all sold during the current year. The investee reported that the net income is $4,000,000 and paid $1,000,000 dividends during the current year.

a. What amount is the investment income for the current year?

b. What amount is the balance of "investment in associate" at the current year-end?

Q2. During the start of the current year, Holland Co. bought 30,000 shares of an investee's 200,000 outstanding inventory shares for $6,000,000. On that date, the carrying amount of the acquired shares was $4,000,000. The entity attributed the excess of cost over carrying amount to patent with remaining useful life of 10 years. During the year, Disgust Company's officers gained a majority on the investee's board of directors. The investee reported earnings of $5,000,000 for the year and paid dividend of $3,000,000 at year-end.

a. What amount is the investment income for the current year?

b. What amount is the balance of "investment in associate" at the current year-end?