Reference no: EM133122820
Question - On 1/1/22 Big Co acquired 100% of Little Co voting stock for $500,000. On that date Little's book value was $350,000. Little had the following misvalued assets and liabilities at 1/1/22:
Land, undervalued by $15,000
Inventory, FIFO basis, undervalued by $20,000
PPE, 5 year remaining life, undervalued by $80,000.
Bonds payable, 10 year life, undervalued by $20,000
During 2022 Little reported earnings of $80,000 and paid dividends of $10,000.
Required -
1. How much goodwill was inherent in the purchase of Little?
2. Assuming Big uses the equity method, what would be the reported investment income for 2022?
3. What would be the balance in the "Investment in Little" after all of the 2022 entries?
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