Reference no: EM132887414
On January 1, 2019, SME acquired a 30% interest in the ordinary shares of another entity that carry voting rights for 15,000,000. On this date, the carrying amount of the net assets acquired is 13,250,000. The carrying amount of the identifiable assets and liabilities of the investee equaled fair value except for equipment whose fair value exceeded the carrying amount by 2,500,000. The remaining useful life for the equipment is five year and any implicit goodwill is amortized over the maximum allowed by SME standard. On December 31, 2019, the investee reported net income of 20,000,000 and declared dividend of 7,500,000. The fair value of the investment in associate is 21,250,000 on December 31, 2019 and there is no published price quotation. SME elected due to use the equity method.
Problem 1: what is the implied goodwill from the acquisition?
a. 1,750,000
b. 1,000,000
c. 750,000
d. 0
Problem 2: what is the investment income for 2019?
a. 2,250,000
b. 6,000,000
c. 5,750,000
d. 5,850,000
Problem 3: what is the carrying amount of the investment in associate on December 31,2019?
a. 18,500,000
b. 21,250,000
c. 16,750,000
d. 18,600,000
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