( Fair Value and Equity Method Compared)
Gregory Inc. acquired 20 % of the outstanding common stock of Handerson Inc. on December 31, 2012. The purchase price was $ 1,320,000 for 50,000 shares. Handerson Inc. declared and paid an $ 0.87 per share cash dividend on June 30 and on December 31, 2013. Handerson reported net income of $ 741,000 for 2013. The fair value of Handerson ‟ s stock was $ 32 per share at December 31, 2013.
Question 15( Call Option)
On January 2, 2012, Jones Company purchases a call option for $ 450 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $ 50 per share. The market price of a Merchant share is $ 50 on January 2, 2012( the intrinsic value is therefore $ 0). On March 31, 2012, the market price for Merchant stock is $ 60 per share, and the time value of the option is $ 200.
Question 16
In 2012, Amirante Corporation had pretax financial income of $ 207,000 and taxable income of $ 166,400. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40 %. Compute the amount to be reported as income taxes payable at December 31, 2012.
Question 17
At December 31, 2012, Fell Corporation had a deferred tax liability of $ 732,802, resulting from future taxable amounts of $ 2,155,300 and an enacted tax rate of 34 %. In May 2013, a new income tax act is signed into law that raises the tax rate to 42 % for 2013 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.
Question 18