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Question - On January 1, 2019, Choco Co. pays $96,000 to acquire 30% of the voting common stock of Cake Inc. Choco uses the equity method to account for its investment. At the time of the investment, Cake had net assets with a book value of $240,000 and with one undervalued net asset building which is undervalued in book by $30,000 (remaining useful life 15 years on 1/1/19). During 2019, Cake reported net income of $100,000 and paid dividends of $60,000. Any excess cost over book value is attributable to goodwill with an indefinite life.
Required -
1) How much is the amount of goodwill from Choco's investment in Cake (1/1/2019).
2) What is annual amortization of FV>BV (i.e., undervalued building)?
3) What is the balance in Choco's investment account at December 31, 2019? Show your calculation (can show journal entries).
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