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Problem 1

Jett, Inc. acquired 30% of Damon Corp.'s voting stock on January 1, 2001 for $240,000. During 2001, Damon
earned $100,000 and paid dividends of $60,000. Jett's 30% interest in Damon gives Jett the ability to exercise
significant influence over Damon's operating and financial policies. During 2002, Damon earned $120,000 and
paid dividends of $40,000 on April 1 and $40,000 on October 1. On July 1, 2002, Jett sold half of its stock in
Damon for $158,000 cash.

a. Before income taxes, what amount should Jett include in its 2001 income statement as a result of the
b. The carrying amount of this investment in Jett's December 31, 2001 balance sheet should be
c. What should be the gain on sale of this investment in Jett's 2002 income statement?

Problem 2
On January 1, 2001, Reagan Co. purchased 25% of Pitts Corp.'s common stock; no goodwill resulted from the
purchase. Reagan appropriately carries this investment at equity and the balance in Reagan's investment
account was $360,000 at December 31, 2001. Pitts reported net income of $225,000 for the year ended
December 31, 2001, and paid common stock dividends totaling $90,000 during 2001. How much did Reagan
pay for its 25% interest in Pitts?

Problem 3
Venus Corp. acquired a 30% interest in Rand Co. on January 1, 2001, for $500,000. At that time, Rand had
1,000,000 shares of its $1 par common stock issued and outstanding. During 2001, Rand paid cash dividends
of $220,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2
per share. Rand's net income for 2001 was $480,000. What should be the balance in Venus' investment
account at the end of 2001?

Problem 4
On July 1, 2007, San Luis Company acquired 25% of the outstanding ordinary shares of San Simon Corporation at a
total cost of P7,000,000. The underlying equity of the shares acquired by San Luis was only P6,000,000. San Luis is
willing to pay more than the book value for the following reasons:
* San Simon owned depreciable plant assets (10-year remaining economic life) with a current fair value
of P600,000 more than their carrying amount.

* San Simon owned land with current fair value of P3,000,000 more than its carrying amount.
* There are no other identifiable tangible or intangible assets with fair value in excess of book value. 
Accordingly, the remaining excess, if any, is to be allocated to goodwill.


San Simon earned net income of P5,400,000 evenly over the year ended December 31, 2007.
On December 31, San Simon declared and paid a cash dividend of P1,050,000 to ordinary shareholders.
Market value of San Luis’ shares at December 31, 2007 is P7,500,000. Both companies close their
accounting records on December 31.

Questions: Based on the above and the result of your audit, determine the following:
a. Total amount of goodwill of San Simon Corporation based on the price paid by San Luis:
b. Net investment income from Investment in San Simon Corporation
c. Carrying amount of Investment in San Simon Corporation as of December 31, 2007