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23 July, 14:52

On January 4, 2017, Trycker, Inc. acquired 40% of the outstanding common stock of Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise significant influence over Inkblot. Inkblot's assets on that date were recorded at $8,000,000 with liabilities of $2,000,000. There were no other differences between book and fair values.

During 2012, Inkblot reported net income of $500,000 and paid dividends of $300,000. The fair value of Inkblot at December 31, 2012 is $7,000,000. Trycker elects the fair value option for its investment in Inkblot.

At what amount will Inkblot be reflected in Trycker's December 31, 2012 balance sheet?

(A) $7,000,000.

(B) $2,800,000.

(C) $2,400,000.

(D) $2,280,000.

(E) $2,480,000.

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Answers (1)
  1. 23 July, 15:57
    0
    correct option is (B) $2,800,000

    Explanation:

    given data

    acquired = 40%

    outstanding common stock = $2,400,000

    assets = $8,000,000

    liabilities = $2,000,000

    net income = $500,000

    paid dividends = $300,000

    fair value = $7,000,000

    solution

    we get here amount that is reflected in December 31, 2012 balance sheet

    as we know fair value, investment reported at fair value

    so amount that reported in balance sheet is share in fair value

    so amount reflected is = 40% share of fair value

    amount reflected = 40% * $7000000

    amount reflected = $2800000

    so correct option is (B) $2,800,000
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