At January 1, 2013, the stockholders' equity of Raven Corporation and its 60%-owned subsidiary, Trunk Corporation, are as follows:
Trunk's net income for 2013 was $40,000. No dividends were declared or paid in 2013. Raven's Investment in Trunk account balance on December 31, 2013 was equal to its underlying equity on December 31, 2013. Trunk Corporation issued 10,000 additional shares of common stock directly to Raven on January 1, 2014 at $22 per share.
Required:
1. Compute the balance in Raven's Investment in Trunk account on January 1, 2014 after its purchase of the additional Trunk shares.
2. Determine the increase or decrease in goodwill stemming from Raven's investment in the 10,000 Trunk shares. Assume the fair value and book value of Trunk's assets and liabilities are equal.

Question

At January 1, 2013, the stockholders' equity of Raven Corporation and its 60%-owned subsidiary, Trunk Corporation, are as follows:
  Trunk's net income for 2013 was $40,000. No dividends were declared or paid in 2013. Raven's Investment in Trunk account balance on December 31, 2013 was equal to its underlying equity on December 31, 2013. Trunk Corporation issued 10,000 additional shares of common stock directly to Raven on January 1, 2014 at $22 per share.
Required:
1. Compute the balance in Raven's Investment in Trunk account on January 1, 2014 after its purchase of the additional Trunk shares.
2. Determine the increase or decrease in goodwill stemming from Raven's investment in the 10,000 Trunk shares. Assume the fair value and book value of Trunk's assets and liabilities are equal.

Quizplus · Accepted Answer

The Answer of At January 1, 2013, the stockholders' equity of Raven Corporation and its 60%-owned subsidiary, Trunk Corporation, are as follows:
  Trunk's net income for 2013 was $40,000. No dividends were declared or paid in 2013. Raven's Investment in Trunk account balance on December 31, 2013 was equal to its underlying equity on December 31, 2013. Trunk Corporation issued 10,000 additional shares of common stock directly to Raven on January 1, 2014 at $22 per share.
Required:
1. Compute the balance in Raven's Investment in Trunk account on January 1, 2014 after its purchase of the additional Trunk shares.
2. Determine the increase or decrease in goodwill stemming from Raven's investment in the 10,000 Trunk shares. Assume the fair value and book value of Trunk's assets and liabilities are equal.

At January 1, 2013, the Stockholders' Equity of Raven Corporation