Reference no: EM132840912
On June 30, 2017, Angkong Company purchased 30% of the outstanding ordinary shares of AA Co. at a total cost of P2, 200,000. The book value of AA Co.'s net assets on acquisition date was P7,100,000.
For the following reasons, Angkong was willing to pay more than book value for the AA Co. stock:
- AA Co. owns a tract of land with a market value of P800,000 more than its carrying amount.
- AA Co. has depreciable assets with a market value of P180,000 more than their book value. These assets have a remaining useful life of 5 years.
- All other identifiable tangible and intangible assets of AA Co. have current fair values that are equal to their carrying amounts.
AA Co. reported net income of P1,260,000, earned evenly during the current year ended December 31, 2017. Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders. Market value of AA Co's ordinary shares at December 31, 2017, is P9,500,000. Angkong Company's financial year-end is December 31.
Requirements:
Problem a. Compute for the total amount of goodwill of AA Co. based on the price paid by Angkong Company.
Problem b. Compute for the amount of investment revenue that Angkong should report on its income statement for the year ended December 31, 2017, under the equity method.
Problem c. Compute for the amount of investment revenue that Angkong should report on its income statement for the year ended December 31, 2017, under the cost method.
Problem d. The carrying value of the Angkong's investment in ordinary shares of AA Co. on December 31, 2017, should be
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