What would be the amount of the acquisition differential amortized during 2018?
LEO Inc. acquired a 60% interest in MARS Inc. on January 1, 2018 for $400,000. Unless otherwise stated, LEO uses the cost method to account for its investment MARS Inc. On the acquisition date, MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively. The acquisition differential was allocated as follows:
$80,000 to undervalued inventory.
$40,000 to undervalued equipment. (to be amortized over 20 years)
The following took place during 2018:
? MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
? LEO's December 31, 2018 inventory contained an intercompany profit of $10,000.
? LEO's net income was $75,000.
The following took place during 2019:
? MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
? MARS' December 31, 2019 inventory contained an intercompany profit of $5,000.
? LEO's net income was $48,000.
Both companies are subject to a 25% tax rate. All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross margin of 20%.
A) $120,000. B) $80,000. C) $82,000. D) $78,000.
C) $82,000.
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