On january 1, 2018, green corporation purchased 20% of the outstanding voting common stock of gold company for $300,000. the book value of the acquired shares was $275,000. the excess of cost over book value is attributable to an intangible asset on gold's books that was undervalued and had a remaining useful life of five years. for the year ended december 31, 2018, gold reported net income of $125,000 and paid cash dividends of $25,000. what is the carrying value of green's investment in gold at december 31, 2018?

The carrying value of Green's investment in Gold at December 31, 2018 is $265,000

Explanation:

The computation of the carrying value of the Green's investment is shown below:

= Purchase of common stock - net income share percentage - Dividend paid share percentage - amortization of the intangible asset

where,

Purchase of common stock is $300,000

Net income percentage = Net income × share percentage

                                        = $125,000 × 20%

                                        = $25,000

Dividend paid share percentage = Dividend paid  × share percentage

                                                      = $25,000 × 20%

                                                      = $5,000

Amortization of intangible asset = (Purchase of common stock - book value) ÷ (remaining useful life)

= ($300,000 - $275,000) ÷ 5 years

= $25,000 ÷ 5 years

= $5,000

Now put these values to the above formula  

So, the value would equal to

= $300,000 - $25,000 - $5,000 - $5,000

= $265,000