The following information applies to Questions 35-26
On December 31, 20X8, Melkor Corporation acquired 80 percent of Sydney Company's common stock for $160,000. At that date, the fair value of the noncontrolling interest was $40,000. Of the $75,000 differential, $10,000 related to the increased value of Sydney's inventory, $20,000 related to the increased value of its land, and $25,000 related to the increased value of its equipment that had a remaining life of 10 years from the date of combination. Sydney sold all inventory it held at the end of 20X8 during 20X9. The land to which the differential related was also sold during 20X9 for a large gain. At the date of combination, Sydney reported retained earnings of $75,000 and common stock outstanding of $50,000. In 20X9, Sydney reported net income of $60,000, but paid no dividends. Melkor accounts for its investment in Sydney using the equity method.
-Based on the preceding information,what is the amount of write-off of differential associated with this acquisition recorded by Melkor during 20X9?
A) $0
B) $32,500
C) $26,000
D) $20,000

Question

Quizplus · Accepted Answer

The write-off of differential for 20X9 includes the full $10,000 related to inventory (since it was sold during 20X9) and $2,500 for equipment ($25,000/10 years), totaling $12,500. The land differential is not amortized but was sold, so the gain is recognized separately. Thus, the total write-off is $12,500.

The Following Information Applies to Questions 35-26