On January 4, 2017, Trycker, Inc. acquired 40% of the outstanding common stock of Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise significant influence over Inkblot. Inkblot’s assets on that date were recorded at $8,000,000 with liabilities of $2,000,000. There were no other differences between book and fair values.

During 2012, Inkblot reported net income of $500,000 and paid dividends of $300,000. The fair value of Inkblot at December 31, 2012 is $7,000,000. Trycker elects the fair value option for its investment in Inkblot.

At what amount will Inkblot be reflected in Trycker's December 31, 2012 balance sheet?

(A) $7,000,000.
(B) $2,800,000.
(C) $2,400,000.
(D) $2,280,000.
(E) $2,480,000.

Question

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Respuesta :

DeniceSandidge DeniceSandidge · Answer 1 · 2020-01-27T05:09:21+01:00

Answer:

correct option is (B) $2,800,000

Explanation:

given data

acquired = 40%

outstanding common stock = $2,400,000

assets = $8,000,000

liabilities = $2,000,000

net income = $500,000

paid dividends = $300,000

fair value = $7,000,000

solution

we get here amount that is reflected in December 31, 2012 balance sheet

as we know fair value, investment reported at fair value

so amount that reported in balance sheet is share in fair value

so amount reflected is = 40% share of fair value

amount reflected = 40% × $7000000

amount reflected = $2800000

so correct option is (B) $2,800,000