Question

On January 3, 2018, Matteson Corporation acquired 30 percent of the outstanding common stock of O’Toole Company for $1,267,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $883,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O’Toole reported net income of $323,000 and declared cash dividends of $55,000. At December 31, 2018, what should Matteson report as its investment in O’Toole under the equity method?

Answer 1

Answer

calculation of investment in O toole under the equity method

particulars	amount
purchase price	1267000
add; basic equity accrual 323000 * 30%	96900
less; amortization of copy right	38400
less; dividends 55000 * 30%	16500
investment in o toole	1309000

amortization of copy right

= 1267000 - 883000

= 384000 /10 ( 10 year life )

= 38400