Question

On January 1, 2017, Marin Inc, paid $705,000 for 9,000 shares of Headland Company's voting common stock, which was a 10% interest in Headland. At that date, the net assets of Headland totaled $5,916,000. The fair values of all of Headland's identifiable assets and liabilities were equal to their book values. Marin does not have the ability to exercise significant influence over the operating and financial policies of Headland. Marin received dividends of $1.60 per share from Headland on October 1, 2017. Headland reported net income of $557,000 for the year ended December 31, 2017. On July 1, 2018, Marin paid $2,304,000 for 27,000 additional shares of Headland Company's voting common stock which represents a 30% investment in Headland. The fair values of all of Headland's identifiable assets net of liabilities were equal to their book values of $6,431,000. As a result of this transaction, Marin has the ability to exercise significant influence over the operating and financial policies of Headland. Marin received dividends of $2.20 per share from Headland on April 1, 2018, and $2.60 per share on October 1, 2018. Headland reported net income of $656,000 for the year ended December 31, 2018, and $344,000 for the 6 months ended December 31, 2018. (For both purchases, assume any excess of cost over book value is due to goodwill.) (a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2017, that Marin should report from its investment in Headland in its income statement issued in March 2018. MARIN INC. Schedule of Income or Loss from Investment For the Year Ended December 31, 2017 , T Dividend Revenue (b) During March 2019, Marin issues comparative financial statements for 2017 and 2018. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2017 and 2018, that Marin should report from its investment in Headland. MARIN INC. Schedule of Income or Loss from Investment For the Year Ended December 31, 2017 2018 2017 Loss from Investments

Answer 1

(a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2017, that Marin should report from its investment in Headland in its income statement issued in March 2018.

Answer: The details is given below.

MARIN INC.
Schedule of Income or Loss from Investment
For the Year Ended December 31, 2017
Dividend Revenue	$14,400
(Marin received dividends of $ 1.60 per share. Hence, for 9,000 shares , 9000 X $ 1.60)

Hence, from the above it can be concluded that the income i.e. dividend revenue of $14,400 before income taxes for the year ended December 31, 2017, that Marin should report from its investment in Headland in its income statement issued in March 2018.

(b) During March 2019, Marin issues comparative financial statements for 2017 and 2018. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2017 and 2018, that Marin should report from its investment in Headland.

Answer: The details is given below.

MARIN INC.
Schedule of Income or Loss from Investment
For the Year Ended December 31, 2018 and 2017
	2018	2017
Marin's income from its investment in Headland.	$168,800	$55,700
Note: 1: Calculation of income for 2017
a) Headland reported net income of $557,000 for the year ended December 31, 2017.
b) On January 1, 2017, Marin Inc, paid $705,000 for 9,000 shares of Headland Company's voting common stock, which was a 10% interest in Headland.
c) Hence, income for 2017 is $55,700 ($557,000 X 10%)
Note: 2: Calculation of income for 2018
a) Headland reported net income of $656,000 for the year ended December 31, 2018, and $344,000 for the 6 months ended December 31, 2018.
b) On July 1, 2018, Marin paid $2,304,000 for 27,000 additional shares of Headland Company's voting common stock which represents a 30% investment in Headland.
c) Therefore, income for First 6 months for 2018
{$312,000 ($656,000-$344,000)} X 10%=$31,200
d) and income for next 6 months for 2018
($344,000) X 40% (10%+30%)=$137,600
e) Hence, income for 2018 is $168,800 ($31,200+$137,600)

Hence, from the above it can be concluded that Marin's income from its investment in Headland before income taxes for the years ended December 31, 2017 and 2018 is $55,700 and $168,800 respectively.