Reference no: EM132810302

Question

Forest Company acquired Garden Company on July 1, Year 1. Information relating to acquisition and other relevant information for year 8 are given below.

Additional Information:

1. Forest acquired 90 percent of Garden for $207,900 on July 1, Year 1, and accounts for its investment under the cost method. At that time, the shareholders equity of Garden amounted to $175,000, and the assets of Garden were undervalued by the following amounts :

Assets
Amount
Remaining life
Inventory
$12,000
-
Buildings
10,000
10 years
Patents
16,000
8 years

2. During Year 8, Forest reported net income of $41,000 and paid dividends of $25, 000, whereas Garden reported net income of $63,000 and paid dividends of $50,000.

3. During Years 2 to 7, goodwill impairment losses totaled $1,950. An impairment test conducted in Year 8 indicated a further loss of $7,150.

4. Forest sells goods to garden on a regular basis at a gross profit of 30 percent. During Year 8, these sales totaled $150,000. On January 1, Year 8, the inventory of Garden contained goods purchased from Forest amounting to $18,000, while the December 31, Year 8, inventory contained goods purchased from Forest amounting to $ 22,000.

5. Forest's 6% bonds have a par value of $100,000. Interests are paid annually on December 31, and it will mature on December 31, year 11. These bonds had a carrying value of $93,376 on January 1, Year 8. On that date, Garden acquired $60,000 of these bonds on the open market at a cost of $57,966.

6. Garden owes Forest $22,000 on open account on December 31, Year 8.