The Following Information Applies to Questions 35-26

question 15

Multiple Choice

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

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Definitions:

U.S. Firms

Companies or businesses that are registered, operate, or have their headquarters in the United States.

Bankrupt

A legal status of a person or entity that cannot repay debts to creditors and is thus subject to specific legal processes.

Life Expectancy

The average number of years an individual is expected to live, based on current mortality rates.

Production Costs

The total expenses incurred in the manufacturing of a product, including labor, materials, and overhead costs.