Figure:
Following Are Selected Accounts for Green Corporation and Vega

question 18

Multiple Choice

Figure:
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted. $$\begin{array} { l r r } & \text { Green } & \text { Vega } \\\text { Revenues } & \$ 900,000 & \$ 500,000 \\\text { Cost of goods sold } & 360,000 & 200,000 \\\text { Depreciation expense } & 140,000 & 40,000 \\\text { Other expenses } & 100,000 & 60,000 \\\text { Equity in Vega's income } & ? & \\\text { Retained earnings, 1/1/13 } & 1,350,000 & 1,200,000 \\\text { Dividends } & 195,000 & 80,000 \\\text { Current assets } & 300,000 & 1,380,000 \\\text { Land } & 450,000 & 180,000 \\\text { Building (net) } & 750,000 & 280,000 \\\text { Equipment (net) } & 300,000 & 500,000 \\\text { Liabilities } & 600,000 & 620,000 \\\text { Common stock } & 450,000 & 80,000 \\\text { Additional paid-in capital } & 75,000 & 320,000\end{array}$$ Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
-Compute the equity in Vega's income to be included in Green's consolidated income statement for 2013.

• A) $500,000.
• B) $300,000.
• C) $190,375.
• D) $200,000.
• E) $290,375.

Understand the concept of moral hazard as a post-contractual problem.

Grasp the concept of adverse selection as a pre-contractual problem.

Identify the types of problems in principal-agent relationships.

Recognize the importance of information gathering in solving agency problems.

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Definitions:

Continuous Random

Pertains to a random variable that can take an infinite number of possible values in a continuous range.

Value In Interval

Refers to a number or a measurement lying within a specific range defined by a lower and upper boundary.

Concept

A mental grouping of similar objects, events, ideas, or people.

Automobile

A wheeled motor vehicle used for transportation, typically powered by an internal combustion engine or electric motor.