The following information applies to Questions 29-31
On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Wisden at the date of acquisition had a remaining economic life of five years. Climber uses the equity method in accounting for its investment in Wisden.
-Based on the preceding information,what balance would Climber report as its investment in Wisden at January 1,20X9?
A) $251,100
B) $224,100
C) $215,100
D) $234,000

Question

Quizplus · Accepted Answer

The investment balance is calculated by adding the initial investment cost to Climber's share of Wisden's net income, subtracting Climber's share of dividends, and adjusting for amortization of the differential. Initial investment: $180,000. Climber's share of net income (90% of $30,000 for 3 years): $81,000. Climber's share of dividends (90% of $10,000 for 3 years): $27,000. Differential amortization (land $5,000, equipment $10,000, patents $15,000 over 5 years): $6,000 per year for 3 years = $18,000. Investment balance = $180,000 + $81,000 - $27,000 - $18,000 = $215,100.

The Following Information Applies to Questions 29-31