During January 2007,Wells,Inc.acquired 30% of the outstanding common stock of Wilton Co.for $1,400,000.This investment gave Wells the ability to exercise significant influence over Wilton.Wilton's assets on that date were recorded at $6,400,000 with liabilities of $3,000,000.Any excess of cost over book value of Wells' investment was attributed to unrecorded patents having a remaining useful life of ten years.
In 2007,Wilton reported net income of $600,000.For 2008,Wilton reported net income of $750,000.Dividends of $200,000 were paid in each of these two years.What was the reported balance of Wells' Investment in Wilson Co.at December 31,2008?

Question

Quizplus · Accepted Answer

The excess of cost over book value of Wells' investment was $400,000 ($1,400,000 - $1,000,000). This excess was attributed to unrecorded patents having a remaining useful life of ten years. Therefore, the annual amortization of the excess is $40,000 ($400,000 / 10).Wells' share of Wilton's net income for 2007 is $180,000 (30% x $600,000). Wells' share of Wilton's net income for 2008 is $225,000 (30% x $750,000).Wells' investment in Wilton Co. at December 31, 2008 is $1,609,000 ($1,400,000 + $180,000 + $225,000 - $40,000 - $40,000 - $200,000 - $200,000).