On 1-1-2011, the company REGAL purchased 30% of the outstanding voting shares of company ARON for $600,000. The book value of ARON's net assets at the date of purchase was $1,800,000. REGAL was willing to pay more than the book value of the acquired shares solely because ARON's depreciable assets with a 10-year remaining life were undervalued. REGAL uses straight-line depreciation. During 2011, ARON reported net income of $150,000 and paid dividends of $60,000. The fair value of the investment in ARON as of 31-12-2011 was $590,000. Assume there is no goodwill implicit in the investment in ARON at acquisition date. The net income reported by REGAL during 2011 pertaining to the ARON investment was: A) $18,000 B) $45,000 C) $63,000 D) $39,000 E) None of the above
On 1-1-2011, the company REGAL purchased 30% of the outstanding voting shares of company ARON for $600,000. The book value of ARON's net assets at the date of purchase was $1,800,000. REGAL was willing to pay more than the book value of the acquired shares solely because ARON's depreciable assets with a 10-year remaining life were undervalued. REGAL uses straight-line depreciation. During 2011, ARON reported net income of $150,000 and paid dividends of $60,000. The fair value of the investment in ARON as of 31-12-2011 was $590,000.
Assume there is no
A) $18,000
B) $45,000
C) $63,000
D) $39,000
E) None of the above
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