Solved: On January 1 2017 Ridge Road Company acquired

20 percent

On January 1, 2017, Ridge Road Company acquired 20 percent of the voting shares of Sauk
Trail, Inc., for $2,700,000 in cash. Both companies provide commercial Internet support services
but serve markets in different industries. Ridge Road made the investment to gain access to
Sauk Trail's board of directors and thus facilitate future cooperative agreements between the
two firms. Ridge Road quickly obtained several seats on Sauk Trail's board which gave it the
ability to significantly influence Sauk Trail's operating and investing activities. The January 1,
2017, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities
follow:

____________________ Carrying Amount _______ Fair Value

Cash and receivables ............$ 110,000 ...................$ 110,000

Computing equipment ..........5,000,000 ................ 5,700,000

Patented technology ............ 100,000 ................. 4,000,000

Trademark ........................ 150,000 ..................2,000,000

Liabilities .........................(185,000) .................(185,000)

Also as of January 1, 2017, Sauk Trail's computing equipment had a seven-year remaining
estimated useful life. The patented technology was estimated to have a three-year remaining
useful life. The trademark's useful life was considered indefinite. Ridge Road attributed to
goodwill any unidentified excess cost.

During the next two years, Sauk Trail reported the following net income and dividends:

_____________ Net Income _________ Dividends Declared

2017............. $1,800,000 ..................... $150,000

2018 ............. 1,985,000 ....................... 160,000

a. How much of Ridge Road's $2,700,000 payment for Sauk Trail is attributable to goodwill?

b. What amount should Ridge Road report for its equity in Sauk Trail's earnings on its income
statements for 2017 and 2018?

c. What amount should Ridge Road report for its investment in Sauk Trail on its balance sheets
at the end of 2017 and 2018?

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 On January 1 2017 Ridge Road Company acquired 20 percent

ANSWER
https://solvedquest.com/on-january-1-2017-ridge-road-company-acquired-20-percent/

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