Question & Answer: Assume an investee has the following financial statement information for the three years ending Dece…..

Assume an investee has the following financial statement information for the three years ending December 31, 2013:

(At December 31)	2011	2012	2013
Current assets	$103,500	$138,850	$142,735
Tangible fixed assets	281,500	287,150	330,865
Intangible assets	25,000	22,500	20,000
Total assets	$410,000	$448,500	$493,600

Current liabilities	$50,000	$55,000	$60,500
Noncurrent liabilities	110,000	121,000	133,100
Common stock	50,000	50,000	50,000
Additional paid-in capital	50,000	50,000	50,000
Retained earnings	150,000	172,500	200,000
Total liabilities and equity	$410,000	$448,500	$493,600

(For the year ended December 31)	2011	2012	2013
Revenues	$425,000	$460,000	$485,000
Expenses	387,500	420,000	438,000
Net income	$37,500	$40,000	$47,000

Dividends	$12,500	$17,500	$19,500

Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee’s identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the “investment in investee” account in the investor company’s preconsolidation balance sheet on December 31, 2013?

A. $225,000

B. $250,000

C. $493,600

D. $300,000

Expert Answer

solution:

total asset as at Dec 31,2013	493600
Less : total liabilitites as at Dec 31, 2013 =60500+133100	193600
investment in investee as at Dec 31, 2013	300000

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