On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: Revenues Expenses Equipment (net) Retained Earnings, beginning of the year Dividend Paid A. B. C. D. E. Equity Partial Equity Method For each of the three methods discussed in the chapter, what should be the Investment in Shaw Company account balance in the records of Parkway Corporation at December 31 of the third year? $ 282,500 286,900 262,500 328,000 277,500 Parkway Shaw $ 250,000 $ 142,500 Method $ 302,900 310,000 277,500 292,500 292,900 175,000 125,000 150,000 25,000 100,000 60,000 75,500 5,000 Initial Value Method $ 220,000 220,000 220,000 220,000 220,000
On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: Revenues Expenses Equipment (net) Retained Earnings, beginning of the year Dividend Paid A. B. C. D. E. Equity Partial Equity Method For each of the three methods discussed in the chapter, what should be the Investment in Shaw Company account balance in the records of Parkway Corporation at December 31 of the third year? $ 282,500 286,900 262,500 328,000 277,500 Parkway Shaw $ 250,000 $ 142,500 Method $ 302,900 310,000 277,500 292,500 292,900 175,000 125,000 150,000 25,000 100,000 60,000 75,500 5,000 Initial Value Method $ 220,000 220,000 220,000 220,000 220,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock
of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of
$148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records.
Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw
reported net income of $25,000 in the year of acquisition and $32,500 in the following year.
Dividends of $2,500 were declared and paid in each of those two years.
The third year of operations is now complete. For each of the two companies, selected account
balances as of December 31 for this third year are as follows:
Revenues
Expenses
Equipment (net)
Retained Earnings, beginning of the year
Dividend Paid
A.
B.
C.
D.
E.
Parkway
Shaw
$ 250,000 $ 142,500
For each of the three methods discussed in the chapter, what should be the Investment in Shaw
Company account balance in the records of Parkway Corporation at December 31 of the third
year?
$ 282,500
286,900
262,500
328,000
277,500
Equity Partial Equity Initial Value
Method
Method
$ 302,900
310,000
277,500
292,500
292,900
175,000
125,000
150,000
25,000
Method
$ 220,000
220,000
220,000
220,000
220,000
100,000
60,000
75,500
5,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education