Kho Inc Purchased 90% of the Voting Shares of Lan Inc

question 15

Multiple Choice

Kho Inc. purchased 90% of the voting shares of Lan Inc. for $600,000 on January 1, 2011. On that date, Lan's commons stock and retained earnings were valued at $200,000 and $250,000 respectively. Unless otherwise stated, assume that Kho uses the cost method to account for its investment in Lan Inc. Lan's fair values approximated its carrying values with the following exceptions: Lan's trademark had a fair value which was $50,000 higher than its carrying value. Lan's bonds payable had a fair value which was $20,000 higher than their carrying value. The trademark had a useful life of exactly ten years remaining from the date of acquisition. The bonds payable mature on January 1, 2021. Both companies use straight line amortization exclusively. The Financial Statements of both companies for the Year ended December 31, 2012 are shown below: Other Information: A goodwill impairment test conducted during August 2012 revealed that the Lan's Goodwill amount on the date of acquisition had been impaired by $10,000. During 2011, Kho sold $50,000 worth of inventory to Lan, half of which was sold to outsiders during the year. During 2012, Kho sold inventory to Lan for $90,000. Two-thirds of this inventory was resold by Lan to outside parties. During 2011, Lan sold $30,000 worth of inventory to Kho, 80% of which was sold to outsiders during the year. During 2012, Lan sold inventory to Kho for $40,000. 75% of this inventory was resold by Kho to outside parties. All intercompany sales as well as sales to outsiders are priced 25% above cost. The effective tax rate for both companies is 20%. What would be the journal entry to record the dividends received by Kho Inc. during the year?

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Definitions:

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Opposition to communism, characterized by efforts to counteract the influence and spread of communist ideology and governments.

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A prolonged conflict from the mid-20th century between North Vietnam, supported by its communist allies, and South Vietnam, supported by the United States and other anti-communist nations.

American Foreign Policy

The strategic approach and actions taken by the United States in its interactions with other nations to achieve its national interests.

Nineteenth Century

The period from 1801 to 1900, characterized by widespread industrialization, political change, and colonial expansion.