On January 1, 2012, Cale Corp Kaltop Earned Net Income for 2012 of $126,000 and Paid

question 55

Multiple Choice

On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012: $\begin{array}{lrr}&\text { Book } & \text { Fair } \\&\text { Value } & \text { Value }\\\text { Current assets } & \$ 120,000 & \$ 120,000 \\\text { Land } & 72,000 & 192,000 \\\text { Building (twenty year life) } & 240,000 & 268,000 \\\text { Equipment (ten year life) } & 540,000 & 516,000 \\\text { Current liabilities } & 24,000 & 24,000 \\\text { Long -term liabilities } & 120,000 & 120,000 \\\text { Common stock } & 228,000 & \\\text { Additional paid -in capital } & 384,000 & \\\text { Retained earnings } & 216,000 &\end{array}$ Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year. What is the balance in Cale's investment in subsidiary account at the end of 2012?

• A)$1,099,000.
• B)$1,020,000.
• C)$1,096,200.
• D)$1,098,000.
• E)$1,144,400.

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Definitions:

Share Price

The current price at which a share of stock can be bought or sold.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted for the investor's share of the investee's profits or losses.

Revaluation

The process of adjusting the book value of an asset to reflect its current fair market value.

Journal Entries

Records of financial transactions in the accounting system of a business, ensuring all financial transactions are accounted for.