70.2K

Verified Solution

Link Copied!

Review of pre-consolidation equity method (controlling investment in affiliate, fair value differs from book value)

Assume an investee has the following financial statement information for the three years ending December 31, 2013:

(At December 31)	2011	2012	2013
Current assets	$310,500	$416,550	$428,205
Tangible fixed assets	844,500	861,450	992,595
Intangible assets	75,000	67,500	60,000
Total assets	$1,230,000	$1,345,500	$1,480,800
Current liabilities	$150,000	$165,000	$181,500
Noncurrent liabilities	330,000	363,000	399,300
Common stock	150,000	150,000	150,000
Additional paid-in capital	150,000	150,000	150,000
Retained earnings	450,000	517,500	600,000
Total liabilities and equity	$1,230,000	$1,345,500	$1,480,800

(For they year endedDecember 31)	2011	2012	2013
Revenues	$1,275,000	$1,380,000	$1,455,000
Expenses	1,162,500	1,260,000	1,314,000
Net income	$112,500	$120,000	$141,000
Dividends	$37,500	$52,500	$58,500

Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "investment in investee" account in the investor company's preconsolidation balance sheet on December 31, 2013?

$900,000

$750,000

$675,000

$1,480,800

Mark 0.00 out of 1.00

The correct answer is: $900,000

Answer & Explanation Solved by verified expert

See Answer