Reference no: EM133165683

Question - On January 1, 2021, Donkey Inc., exchanged $177,525 for 25 percent of Sweeney Corporation. Donkey Inc. appropriately applied the equity method to this investment. At January 1, the book values of Sweeney's assets and liabilities approximated their fair values.

On June 30, 2021, Donkey Inc. paid $598,500 for an additional 70 percent of Sweeney, thus increasing its overall ownership to 95 percent. The price paid for the 70 percent acquisition was proportionate to Sweeney's total fair value. At June 30, the carrying amounts of Sweeney's assets and liabilities approximated their fair values. Any remaining excess fair value was attributed to goodwill.

Sweeney reports the following amounts at December 31, 2021 (credit balances shown in parentheses):

Revenues: (344,000)

Expenses: 205,000

Retained earnings, January 1: (211,700)

Dividends declared. October 1: 10,000

Common stock: (500,000)

Sweeney's revenue and expenses were distributed evenly throughout the year, and no changes in Sweeney's stock have occurred.

Required -

A) Using the acquisition method, calculate the acquisition-date fair value of Sweeney to be included in Donkey's June 30 consolidated financial statements.

B) Using the acquisition method, calculate the revaluation gain (or loss) reported by Donkey Inc. for its 25 percent investment in Sweeney on June 30.

C) Record the revaluation gain on June 30.