Balfour Corporation acquired 100% of Tobac Inc., a foreign corporation, for 33,000,000 FC. The acquisition, which was accounted for as a purchase, occurred on July 1, 20x5, when Tobac's equity, in FC, was as follows:
- Common Stock $19,000,000 FC
- Paid-in capital in excess of par 8,480,000
- Retained Earnings 2,520,000
Any excess of of cost over book value is traeable to equipment which is to be depreciated over 10 years. Balfour uses the simple equity method to account for its investment in Tobac.
On April 1, 20X7, Tobac acquired additional equipment costing 4,000,000 FC. Equipment is depreciated by the straight-line method over 10 years. No other equipment had been acquired or disposed of since 20X4. Tobac employs the LIFO inventory method. Ending inventory on December 31, 20X7,consists of the following:
- Acquired in the 1st quarter of 20X4 1,000,000 FC
- Acquired in the 1st quarter of 20X5 500,000
- Acquired in the 1st quarter of 20X7 6,500,000