Plain Corporation Acquired a 75% Interest in Swampy Company on January

question 16

Essay

Plain Corporation acquired a 75% interest in Swampy Company on January 1,2016,for $2,000,000.The book value and fair value of the assets and liabilities of Swampy Company on that date were as follows:
The property and equipment had a remaining life of 6 years on January 1,2016,and the deferred charge was being amortized over a period of 5 years from that date.Common stock was $1,500,000 and retained earnings was $900,000 on January 1,2016.Plain Company records its investment in Swampy Company using the cost method.
Required:
Prepare,in general journal form,the December 31,2016,workpaper entries necessary to:
A.Eliminate the investment account.
B.Allocate and amortize the difference between implied and book value.

---

Definitions:

Asset Allocation

The strategy of distributing investments among different asset categories, such as stocks, bonds, and cash, to optimize risk and return.

Investment Portfolio

A collection of various types of investments held by an individual, institutional investor, or financial institution aiming to diversify risk and achieve certain financial goals.

Asset Classes

Categories of assets, such as stocks, bonds, real estate, and commodities, that exhibit similar characteristics and behave similarly in the marketplace.

Bottom-Up

An investment approach that focuses on the analysis of individual stocks and fundamental factors affecting a company, as opposed to market-wide trends.