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Answers to Problems 1. D 2. B 3. C 4. B 5. D 6. A Acquisition price $1,600,000 Equity income ($560,000 × 40%) 224,000 Dividends (50,000 shares × $2.00) (100,000) Investment in Harrison Corporation as of December 31 $1,724,000 7. A Acquisition price $700,000 Income accruals: 2014—$170,000 × 20% 34,000 2015—$210,000 × 20% 42,000 Amortization (see below): 2014 (10,000) Amortization: 2015 (10,000) Dividends: 2014—$70,000 × 20% (14,000) 2015—$70,000 × 20% (14,000) Investment in Martes, December 31, 2015 $728,000 Acquisition price of Martes $700,000 Acquired net assets (book value) ($3,000,000 × 20%) (600,000) Excess cost over book value to patent $100,000 Annual amortization (10 year remaining life) $10,000 8. B Purchase price of Johnson stock $500,000 Book value of Johnson ($900,000 × 40%) (360,000) Cost in excess of book value $140,000 Remaining Annual Payment identified with undervalued life amortization Building ($140,000 × 40%) 56,000 7 yrs. $8,000 Trademark ($210,000 × 40%) 84,000 10 yrs. 8,400 Total $ -0- $16,400

Investment purchase price $500,000 Basic income accrual ($90,000 × 40%) 36,000 Amortization (above) (16,400) Dividends declared ($30,000 × 40%) (12,000) Investment in Johnson $507,600 9. D The 2014 purchase is reported using the equity method. Purchase price of Evan stock $600,000 Book value of Evan stock ($1,200,000 × 40%)

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