Reference no: EM131221735
On January 1, 2008 Vider Corporation purchased 90,000 shares of Elcove Company for $30 per share in cash and also paid $40,000 in direct costs to acquire these shares. The acquisition gave Vider a 45 percent ownership stake in Elcove and resulted in Viper being able to exercise significant influence over Elcove.
On January 1, 2008 the owners’ equity of Elcove was $5,000,000. On this date equipment with a remaining useful life of five years was undervalued by $500,000, inventory to be sold in 2008 was undervalued by $240,000, and liabilities, with a settlement date in 2017, were undervalued by $60,000. The remaining excess of the purchase consideration is attributable to goodwill.
The balance of Elcove’s owners’ equity on December 31, 2010 was $5,500,000 and the company had not issued any additional shares during its existence. During 2011 Elcove had net income of $575,000 and paid a dividend of $2 per share.
Required:
Compute the balance of Vider’s investment in Elcove at December 31, 2011.
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