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Compute the investment income

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Reference no: EM132956992

Question - At the beginning of 2019, Orlando Company purchased 40% of the outstanding ordinary shares of the investee paying P3,000,000 when the carrying amount of the net assets of the investee equaled P5,000,000.

The difference was attributed to equipment which had a carrying amount of P1,500,000 and a fair market value of P2,000,000, inventory with a carrying value of P100,000 and a fair market value of P150,000, and to a building with a carrying amount of P1,000,000 and a fair market value of P1,500,000.

The remaining useful life of the equipment and building was 4 years and 10 years, respectively. It is expected that the inventory will be sold during the year. During the current year, investee reported net income of P1,500,000 and paid dividends of P1,000,000.

In the succeeding year which is 2020, The investee reported a net income of P500,000 but did not issue dividends.

Required -

1. Compute the goodwill as the result of the purchase of investment.

2. Compute the investment income for 2019.

3. Compute the dividend income to be recognized in 2019.

4. Compute the ending balance of Investment in Associate in 2019.

5. Compute the ending balance of Investment in Associate in 2020.

Reference no: EM132956992

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