On December 31,20X5,Paris Corporation acquired 60 percent of Sanlo Company's common stock for $180,000.At that date,the fair value of the noncontrolling interest was $120,000.Of the $45,000 differential,$5,000 related to the increased value of Sanlo's inventory,$15,000 related to the increased value of its land,and $10,000 related to the increased value of its equipment that had a remaining life of five years from the date of combination.Sanlo sold all inventory it held at the end of 20X5 during 20X6.The land to which the differential related was also sold during 20X6 for a large gain.In 20X6,Sanlo reported net income of $40,000 but paid no dividends.Paris accounts for its investment in Sanlo using the equity method.
-Based on the preceding information,what amount of differential would Paris amortize during 20X6 in its equity method journal entries?
A)$13,200
B)$15,000
C)$22,000
D)$30,000

Question

Quizplus · Accepted Answer

The differential to be amortized in 20X6 includes the increased value of Sanlo's equipment ($10,000) over its remaining life of five years, which equals $2,000 per year ($10,000 / 5 years). Since Paris Corporation owns 60% of Sanlo, the amount to be amortized by Paris is 60% of $2,000, which equals $1,200. The increased value of inventory and land are not amortized because they were sold during 20X6. Therefore, the total differential amortized by Paris in 20X6 is $1,200.

On December 31,20X5,Paris Corporation Acquired 60 Percent of Sanlo Company's