Problem 1: Ace purchases 40 percent of Baskett Company on January 1 for $500,000. Although not used, this acquisition gave Ace the ability to apply significant influence to the operating and financing policies of Baskett. Baskett reports assets on that date of $1,400,000 with liabilities of $500,000. One building with a seven-year life is undervalued on Baskett's books by $140,000. In addition, Baskett's book value for equipment (10-year life) is undervalued by $210,000. During the year, Baskett reports net income of $90,000 while paying dividends of $30,000. What is the Investment in Baskett balance in Ace's financial records as of December 31?
a. $504,000.
b. $507,600.
c. $513,900.
d. $516,000.
Problem 2: On January 3, 2004, Haskins Corporation acquired 40 percent of the outstanding common stock of Clem Company for $999,000. This acquisition gave Haskins the ability to exercise significant influence over the investee. The book value of the acquired shares was $790,000. Any excess cost over the underlying book value was assigned to a patent that was undervalued on Clem's balance sheet. This patent has a remaining useful life of 10 years. For the year ended December 31, 2004, Clem reported net income of $260,000 and paid cash dividends of $80,000. At December 31, 2004, what should Haskins report as its investment in Clem?
Following problems are based on the following information: Hampstead, Inc. has only three assets:
Book Value Fair Market Value
Inventory ......................................$110,000 $150,000
Land ............................................. 700,000 600,000
Buildings ....................................... 700,000 900,000
Miller Corporation purchases Hampstead by issuing 100,000 shares of its $10 par value common stock.
Problem 3: If Miller's stock is worth $20 per share, at what value will the inventory, land, and buildings be consolidated, respectively?
a. $110,000, $600,000, $900,000
b. $110,000, $700,000, $700,000
c. $150,000, $600,000, $900,000
d. $150,000, $700,000, $900,000
Problem 4: If Miller's stock is worth $15 per share, at what value will the inventory, land, and buildings be consolidated, respectively?
a. $110,000, $695,000, $695,000
b. $150,000, $525,000, $825,000
c. $150,000, $540,000, $810,000
d. $136,363, $545,455, $818,182