Reference no: EM132635157

Question - Choco, Inc. acquires 15% of Cake Corporation on January 1, 2018, for $130,000 when the book value of Cake's net assets was $760,000. During 2018 Cake reported net income of $150,000 and paid dividends of $32,000. Cake has a land that are undervalued by $30,000 in January 1, 2018. On January 1, 2019, Choco purchased an additional 30% of Cake for $280,000, giving Choco the ability to significantly influence the operating policies of Cake. During 2019, Cake reported net income of $180,000 and paid dividends of $32,000. Cake's land (Cake has only one land) was undervalued by $32,000 in January 1, 2019. Any excess of cost over book value is attributable to Trademark which has a useful life of 8 years in January 1, 2018. During 2018 and 2019, there was no fair value adjustment for Cake (there was no changes in fair value). And during 2018 and 2019, there was no changes in net assets.

Required -

1) What is the balance of the investment account in Cake at December 31, 2018?

2) What journal entry does Choco needs to make December 31, 2018 regarding Cake's dividends?

3) In 2019, when Choco acquired additional 30% of Cake, Choco needs to use equity method retrospectively to record for investment in Cake. Calculate Trademark in 2018 that will be recorded in 2019 if any.

4) In 2019, calculate annual amortization of Trademark in 2018?

5) In 2019, using the equity method, what is the balance of the investment account in Cake at December 31, 2018? Show your calculation.

6) Calculate Trademark in 2019 acquisition that will be recorded in 2019 if any.

7) In 2019, calculate annual amortization of Trademark in 2019?

8) What is the balance of the investment account in Cake at December 31, 2019? Show your calculation.