Question

At the start of the current year, SBC Corp purchased 25% of Sky Tech Inc. for $52 million. At the time of purchase, the carrying value of Sky Tech's net assets was $86 million. The fair value of Sky Techs depreciable assets was $10 million in excess of their book value For this year, Sky Tech reported a net income of $86 million and declared and paid $10 million in dividends.

The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is:

a. $24 million.
b. $2.5 million.
c. $10 million.
d. None of these answer choices is correct.

Answer 1

Answer:

The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is $2.5 million. The right answer is b.

Explanation:

According to the given data we have the following:

SBC Corp purchased 25% of Sky Tech Inc. for $52 million.

The fair value of Sky Techs depreciable assets was $10 million in excess of their book value

Therefore, The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is calculated by the following formula:

Total amount of additional depreciation to be recognized= $10 million * 25%

                                                                                                = $2.5 million