Reference no: EM132879855
Question - On January 1, 2020 Krab Co. purchased a 60% interest in the voting stock of Phish Co. for cash. This was a bargain purchase having an acquisition gain of $30,000.
In Krab Co.'s trail balance dated December 31, 2022 - three years later - the balance in the investment in Phish Co. account is shown at $450,000. During 2020 and 2021, Phish Co. reported a total net income for the two years of $80,000. Phish Co. reported net income of $22,000 for 2022, and in 2022 it declared and paid cash dividends of $5,000.
At the time of the acquisition on January 1, 2020, it was determined that, on Phish Co.'s books, (1) its Plan Assets were mis-valued. These were only two mis-valuations on the date of acquisition. The company uses the straight-line method for allocating these two mis-valuations to the periods of their remaining useful lives
In the consolidation working paper prepared on December 31, 2022, the "O" (Write Off) eliminating entry shows a debit to Plant Assets, net of $60,000 and a credit to Patents of $54,000. In the same working paper, Equity in Other Comprehensive Loss is shown at $2,000 in Krab Co.'s trial balance. Both companies use U.S. GAAP.
Required - Please show an analysis of the Investment in Phish Co. account to determine the amount of Krab Co.'s cash payment to acquire its 60% interest in Phish Co. on January 1, 2020. Please show all of the supporting calculations in the analysis. Please label each increase and decrease in the investment account during the 3-year period, keyed to the items of information given above.
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Show an analysis of the Investment in Phish Co account
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