Prairie Inc. pays $25,000 for the voting stock of Straw Inc. on July 1, 2019. Straw's book value at the date of acquisition is $5,600. The following items are reported on StrawA's books at amounts that are different from their fair values:
$$\begin{array} { | l | r | l | }
\hline & \begin{array} { c }
\text { Fair Value - } \
\text { Book value }
\end{array} & { \begin{array} { c }
\text { Reporting } \
\text { Method }
\end{array} } \
\hline \text { Inventories } & \$ 400 & \text { FIFO [so ld in fiscal 2020\} } \
\hline \text { Property, plant \& equipment } & \{ 3,000 \} & 10 \text {-year life, straight-line } \
\hline \text { In-process R\&D } & 4,000 & \text { Indefinite life } \
\hline
\end{array}$$ It is now June 30, 2020, the fiscal year-end for both Prairie and Straw. Straw reported net income of $2,500 and declared and paid dividends of $400 in fiscal 2020. Prairie uses the complete equity method to report its investment on its own books. An impairment test at June 30, 2020 reveals that 10% of the goodwill arising from this acquisition is impaired.
Required
a. Calculate equity in net income of Straw Inc. for fiscal 2020, reported by Prairie on its own books.
b. What is the June 30, 2020 balance for Investment in Straw Inc., reported by Prairie on its own books?

Question

Prairie Inc. pays $25,000 for the voting stock of Straw Inc. on July 1, 2019. Straw's book value at the date of acquisition is $5,600. The following items are reported on StrawA's books at amounts that are different from their fair values:
 $$\begin{array} { | l | r | l | } 
\hline & \begin{array} { c } 
\text { Fair Value - } \
\text { Book value }
\end{array} &  { \begin{array} { c } 
\text { Reporting } \
\text { Method }
\end{array} } \
\hline \text { Inventories } & \$ 400 & \text { FIFO [so ld in fiscal 2020\} } \
\hline \text { Property, plant \& equipment } & \{ 3,000 \} & 10 \text {-year life, straight-line } \
\hline \text { In-process R\&D } & 4,000 & \text { Indefinite life } \
\hline
\end{array}$$ It is now June 30, 2020, the fiscal year-end for both Prairie and Straw. Straw reported net income of $2,500 and declared and paid dividends of $400 in fiscal 2020. Prairie uses the complete equity method to report its investment on its own books. An impairment test at June 30, 2020 reveals that 10% of the goodwill arising from this acquisition is impaired.
Required
a. Calculate equity in net income of Straw Inc. for fiscal 2020, reported by Prairie on its own books.
b. What is the June 30, 2020 balance for Investment in Straw Inc., reported by Prairie on its own books?

Quizplus · Accepted Answer

The Answer of Prairie Inc. pays $25,000 for the voting stock of Straw Inc. on July 1, 2019. Straw's book value at the date of acquisition is $5,600. The following items are reported on StrawA's books at amounts that are different from their fair values:
 $$\begin{array} { | l | r | l | } 
\hline & \begin{array} { c } 
\text { Fair Value - } \
\text { Book value }
\end{array} &  { \begin{array} { c } 
\text { Reporting } \
\text { Method }
\end{array} } \
\hline \text { Inventories } & \$ 400 & \text { FIFO [so ld in fiscal 2020\} } \
\hline \text { Property, plant \& equipment } & \{ 3,000 \} & 10 \text {-year life, straight-line } \
\hline \text { In-process R\&D } & 4,000 & \text { Indefinite life } \
\hline
\end{array}$$ It is now June 30, 2020, the fiscal year-end for both Prairie and Straw. Straw reported net income of $2,500 and declared and paid dividends of $400 in fiscal 2020. Prairie uses the complete equity method to report its investment on its own books. An impairment test at June 30, 2020 reveals that 10% of the goodwill arising from this acquisition is impaired.
Required
a. Calculate equity in net income of Straw Inc. for fiscal 2020, reported by Prairie on its own books.
b. What is the June 30, 2020 balance for Investment in Straw Inc., reported by Prairie on its own books?

Prairie Inc It Is Now June 30, 2020, the Fiscal Year-End for Inc