Reference no: EM132624468
Question - Georgia Corporation acquired 25% of the outstanding voting shares of Atlanta Corporation for $400,000 in cash on January 1, 2018, when Atlanta Corporation had a book value of $1,500,000. An additional 10% of the stock is purchased on January 1, 2019, for $217,000.
The following information is available for Atlanta Corporation:
2018 2019 2020
Net Income 700,000 750,000 900,000
Dividends 150,000 100,000 100,000
The Fair Value of Atlanta Corporation's stock at December 31, 2018 was $2,300,000.
The book values of Atlanta Corporation's asset and liability accounts are considered as equal to fair values except for a Customer List whose value accounted for Georgia Corporation's excess cost in each purchase. The Customer List had a remaining life of 10 years at January 1, 2018.
Required (treat each scenario as independent of the other!):
1. If Georgia Corporation sells its entire investment in Atlanta Corporation on January 1, 2020, for $1,300,000 cash, what is the impact on Georgia Corporation's income? Show all your calculations.
2. Assume that Georgia Corporation sells inventory to Atlanta Corporation during 2019 and 2020 as follows:
Cost to Georgia Price to Atlanta Year-End Balance (at transfer price)
2019 35,000 50,000 20,000 (sold in following year)
2020 33,000 60,000 40,000 (sold in following year)
What amount of equity income should Georgia recognize for the year 2020? Show all your calculations.
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