Question

Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for $486,000. At the time of the combination, Station reported common stock outstanding of $120,000 and retained earnings of $380,000, and the fair value of the noncontrolling interest was $54,000. The book value of Station's net assets approximated market value except for patents that had a market value of $40,000 more than their book value. The patents had a remaining economic life of five years at the date of the business combination. Station reported net income of $60,000 and paid dividends of $20,000 during 20X1.

Required:
a. What balance did Public report as its investment in Station at December 31, 20X1, assuming Public uses the equity method in accounting for its investment?

Answer 1

Answer Caluylation of balagce of investment_in_statiºn_qt December 31, -2001 assuming Public Corporation uses the equity method Faulty Method Equity Method is used when company wants to Herald the income earned though the inestment in quather substlivy umpany Pavent company has influence over subsidiary company to record income through Equity method In Equity method, the parent company should record an income equined by subsidiary company to its income statement as e proportion of investment 10 subsidiany company. Ako any dividend received by the subsidiary company should be decrequel from the value of investments: In the question, Public Corporation - Pereat company Station company Subsidiary company _Balance in_Jauerlment : Investment_+ Poportional - Pregartenal in station company male Net Income Dividend's = $[0486000) + C$ 6oon X 90°) - - Coow X902 - $ ( 486000 + 540.00 - 19000 ] _ : $ [540001– 18000) Balance in Investment in Station = $ 522000 Public Corporation has $522000 balence in investimeat ia Stating company 95 December 31,2008 ai per Equity Metta/