Chapter One Case – 25 points

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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:


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

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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