Reference no: EM132772436

On 1/1/2018, Able acquires 15 percent of Baker's outstanding common stock at the market price for $50,000. On that date, Able accounts for this investment using the fair value method. On 1/1/2019, Able buys an additional 15 percent of Baker for $69,000. With the purchase of the additional shares, Able has the ability to significantly influence the decisions of Baker.

The following information is available for Baker for those two years:

Income 2018 $80,000
2019 $100,000
Dividends Declared 2018 $30,000
2019 $40,000
Total Shares Outstanding Fair Value (12/31) 2018 $460,000
2019 $500,000

• On 1/1/2018, Baker reported a net book value of $300,000. On that date, a patent was undervalued in the books by $10,000. The patent has a remaining life of 3 years. All other assets and liabilities had book values that equaled their fair values. Any remaining excess of cost over book value is attributed to goodwill. On 1/1/2019, the patent remained undervalued in the books by $10,000. All other assets and liabilities continue to have book values that equaled their fair values. Assume that Baker did not purchase or sell any other assets, incur any liabilities, or bought or sold stock between 1/1/2018 and 12/31/2019.

Problem 1: What is the ending balance of the investment in Baker account on 12/31/2018? Show your work.

Problem 2: What is the goodwill generated from this investment subsequent to the additional stock purchase on 1/1/2019?

Problem 3: What is the excess amortization associated with the patent for 2019?

Problem 4: Write out the journal entries corresponding to the investment in Baker for 2019 including the dates of the entries.