On January 1, 2022, Pronto Company acquired 80 percent of Speedy Inc.'s voting stock for $9,875,000. The fair value of the 20 percent noncontrolling interest was $2,125,000. Speedy's net assets were reported at amounts approximating book value, but Pronto determined that Speedy had the following previously unreported intangible assets: •Developed technology, fair value $1,000,000, 5-year life • Favorable leases, fair value $500,000, 4-year life Speedy's shareholders' equity on January 1, 2022, was $5,000,000. It is now December 31, 2023 (two years later). Speedy reported net income of $400,000 in 2022. There are no impairments of identifiable intangibles or goodwill in 2022 or 2023. Pronto uses the complete equity method to report its investment in Speedy on its own books. Speedy's December 31, 2023, trial balance appears below. Dr (Cr) Current assets $10,000,000 Property and equipment, net 25,000,000 Liabilities (29,000,000) Capital stock (1,000,000) Retained earnings, January 1 (4,400,000) Sales revenue Cost of goods sold (35,000,000) 30,000,000 Operating expenses 4,400,000 $0 On the December 31, 2023, consolidation working paper, eliminating entry (R) reduces Investment in Speedy by Select one: a. $5,875,000 b. $5,615,000 ✔ c. $5,340,000 d. $5,600,000
On January 1, 2022, Pronto Company acquired 80 percent of Speedy Inc.'s voting stock for $9,875,000. The fair value of the 20 percent noncontrolling interest was $2,125,000. Speedy's net assets were reported at amounts approximating book value, but Pronto determined that Speedy had the following previously unreported intangible assets: •Developed technology, fair value $1,000,000, 5-year life • Favorable leases, fair value $500,000, 4-year life Speedy's shareholders' equity on January 1, 2022, was $5,000,000. It is now December 31, 2023 (two years later). Speedy reported net income of $400,000 in 2022. There are no impairments of identifiable intangibles or goodwill in 2022 or 2023. Pronto uses the complete equity method to report its investment in Speedy on its own books. Speedy's December 31, 2023, trial balance appears below. Dr (Cr) Current assets $10,000,000 Property and equipment, net 25,000,000 Liabilities (29,000,000) Capital stock (1,000,000) Retained earnings, January 1 (4,400,000) Sales revenue Cost of goods sold (35,000,000) 30,000,000 Operating expenses 4,400,000 $0 On the December 31, 2023, consolidation working paper, eliminating entry (R) reduces Investment in Speedy by Select one: a. $5,875,000 b. $5,615,000 ✔ c. $5,340,000 d. $5,600,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2022, Pronto Company acquired 80 percent of Speedy Inc.'s voting stock for $9,875,000. The fair value of the 20
percent noncontrolling interest was $2,125,000. Speedy's net assets were reported at amounts approximating book value,
but Pronto determined that Speedy had the following previously unreported intangible assets:
•Developed technology, fair value $1,000,000, 5-year life
• Favorable leases, fair value $500,000, 4-year life
Speedy's shareholders' equity on January 1, 2022, was $5,000,000. It is now December 31, 2023 (two years later). Speedy
reported net income of $400,000 in 2022. There are no impairments of identifiable intangibles or goodwill in 2022 or 2023.
Pronto uses the complete equity method to report its investment in Speedy on its own books. Speedy's December 31, 2023,
trial balance appears below.
Dr (Cr)
Current assets
$10,000,000
Property and equipment, net
25,000,000
Liabilities
(29,000,000)
Capital stock
(1,000,000)
Retained earnings, January 1 (4,400,000)
Sales revenue
Cost of goods sold
(35,000,000)
30,000,000
Operating expenses
4,400,000
$0
On the December 31, 2023, consolidation working paper, eliminating entry (R) reduces Investment in Speedy by
Select one:
a. $5,875,000
b. $5,615,000 ✔
c. $5,340,000
d. $5,600,000
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