Question

Anderson acquires 10 percent of the outstanding voting shares of Barringer on January 1, 2013, for $102,520 and categorizes the investment as an available-for-sale security. An additional 20 percent of the stock is purchased on January 1, 2014, for $235,900, which gives Anderson the ability to significantly influence Barringer. Barringer has a book value of $890,000 at January 1, 2013, and records net income of $196,000 for that year. Barringer declared and paid dividends of $79,000 during 2013. The book values of Barringer's asset and liability accounts are considered as equal to fair values except for a copyright whose value accounted for Anderson's excess cost in each purchase. The copyright had a remaining life of 16 years at January 1, 2013. Barringer reported $243,200 of net income during 2014 and $322,200 in 2015. Dividends of $116,000 are declared and paid in each of these years. Anderson uses the equity method. a. On its 2015 comparative income statements, how much income would Anderson report for 2013 and 2014? $ 18,756 Equity income 2013 Equity income $ 67,493 2014 b. If Anderson sells its entire investment in Barringer on January 1, 2016, for $472,005 cash, what is the impact on Anderson's income? Gain on sale of $ 56,173 investment

Answer 1

(a) Net Income Total Share in lovenership ince income 10% $ 10252 2013 | $102520 100% 2014 $235900 2001 30% 47180 Dec.31, Debit I credit 2013 | Investmed 810252 Balance sheet in Barrin- gor Equity Income in Barrit nger $10252 I Income Statement

$472005 Cash Procuds @ Jan 1, 2016 Leasi Acquisition Cost 2015 2014 Gains on sale of AFS Securities $102520 235900 338420 $133585

Acquired Sold Balance of Carrying shares shares Shades ownerships up value ad Dec 31 Jan. 1 $890000 2013 2013 $102520 $10252010.. 979000 2014 235900 38500 299920 264 174 800 2015 35750 335670 29% 1174800 Journal Entry Net 18322200 lavestment in 193438 Barringer Yor 2015 ordid 29.1. Equity Income in 93438 Barringer Income $322200 lavestn. Share in Net 1 $93438 Income yor 2015