On January 1,2007,Firewire Company acquired 40 percent of Browser Company's common stock.For this acquisition,Firewire paid $45,000 above book value.The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition.During 2007 and 2008,Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000,respectively.Firewire reported a balance in its investment account of $230,000 on December 31,2008.It uses the equity method in accounting for this investment.
-Based on the preceding information,what is the annual amount of amortization of differential over the ten year period?

Question

Quizplus · Accepted Answer

The differential of $45,000 was attributed to equipment with a remaining life of ten years and zero salvage value. Therefore, the annual amortization of the differential would be $4,500 ($45,000 divided by 10 years). This amount would be included in Firewire's investment income each year.

On January 1,2007,Firewire Company Acquired 40 Percent of Browser Company's