On April 1, 2009, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets. BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2009, and the rest to goodwill. LittleTick recognized a total of $20,000 of net income for 2009, and paid a total of $10,000 of dividends to shareholders. BigBen's investment in LittleTick will affect BigBen's 2009 net income by:

Question

Quizplus · Accepted Answer

BigBen's share of LittleTick's net income is $15,000 (30% x $20,000), and its share of the dividend is $3,000 (30% x $10,000). The net effect on BigBen's income is $12,000 ($15,000 - $3,000). However, BigBen also recognized a loss of $10,500 on the inventory, so the overall effect on BigBen's net income is a loss of $10,500 ($12,000 - $10,500).

On April 1, 2009, BigBen Company Acquired 30% of the Shares