# Chapter One Case – 25 points – professionalessaybuddy.com

Chapter One Case – 25 points – professionalessaybuddy.com

Discipline:

Accounting

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Chapter One Case – 25 points

On January 1, 2015, Smith Company acquired 80,000 shares of Bonn Logistics, Inc. for \$32 per share. This gave Smith a 35 percent ownership of Bonn and Smith utilized the equity method to account for this acquisition.

As of the date of acquisition, Bonn had assets with a book value of \$7,200,000 and liabilities of \$1,750,000. Equipment held by Bonn appraised at \$50,000 above book value and was considered to have a 10-year remaining life. In addition, Bonn’s building was appraised for \$1,300,000, but had a book value of \$800,000 with a 20-year remaining life. Any remaining excess cost was attributable to goodwill. Depreciation and amortization utilizes the straight-line method.

Income and dividends for the years ended December 31, 2015, 2016, and 2017, are as follows, respectively: Income = \$185,000, \$275,000, \$340,000; Dividends = \$32,000, \$45,000, \$62,000.

In addition, Smith sold inventory to Bonn beginning in 2014 and continuing through the year-end date of December 31, 2017. The detail of the transactions and the amount remaining in inventory for Apple at the end of each year is as follows:

Required:

Prepare a schedule that identifies the allocation of the investment amount by Smith in the acquisition of Bonn. Make sure to identify the individual steps / parts a you develop and display the solution. (5 points)

Develop a schedule to illustrate the amount of excess amortization associated with the undervalued assets. (2 points)

Prepare a schedule to support any profit in inventory deferral or recognition for

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