On January 1, 2022, Pronto Company acquired all of Speedy Inc.'s voting stock for $12,000,000 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) $10,000,000 Current assets Property and equipment, net 25,000,000 Liabilities (29,000,000) Capital stock (1,000,000) Retained earnings, January 1 (4,400,000) (35,000,000) 30,000,000 4,400,000 Sales revenue Cost of goods sold Operating expenses On the December 31, 2023, consolidation working paper, eliminating entry (R) reduces Investment in Speedy by Select one: O a. $6,675,000 ✓ $0 Ob. $1,500,000
On January 1, 2022, Pronto Company acquired all of Speedy Inc.'s voting stock for $12,000,000 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) $10,000,000 Current assets Property and equipment, net 25,000,000 Liabilities (29,000,000) Capital stock (1,000,000) Retained earnings, January 1 (4,400,000) (35,000,000) 30,000,000 4,400,000 Sales revenue Cost of goods sold Operating expenses On the December 31, 2023, consolidation working paper, eliminating entry (R) reduces Investment in Speedy by Select one: O a. $6,675,000 ✓ $0 Ob. $1,500,000
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter8: Property Transactions: Capital Gains And Losses, Section 1231 And Recapture Provisions
Section: Chapter Questions
Problem 38P
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