Homework Answers
Requirement 1
Equity method is one of methods to account for investment in another company where there is significant influence over the company in investing. Net income of investee increases investor’s asset value on balance sheet.
|
Acquisition price |
$ 79,100 |
|
Book value X 40% = (253000-117000) *40% |
$ (54,400) |
|
Excess payment |
$ 24,700 |
|
Value of patent in excess of book value |
$ (13,200) |
|
Goodwill |
$ 11,500 |
Computation of annual amortization
|
Amortization |
|
|
Patent (13200/6) |
$ 2,200 |
|
Goodwill |
$ - |
|
Annual amortization |
$ 2,200 |
Let’s compute the investment in Holister as on 31/12/2018
|
Acquistion price |
$ 79,100 |
|
Basic equity accrual 2017 = 41750*40% |
$ 16,700 |
|
Dividends -2017 = 14000*40% |
$ (5,600) |
|
Amortization-2017 (above) |
$ (2,200) |
|
Investment in Holister 31/12/17 |
$ 88,000 |
|
Basic equity accrual —2018 =64000 *40% |
$ 25,600 |
|
Dividends—2018 = 19000*40% |
$ (7,600) |
|
Amortization—2018 |
$ (2,200) |
|
Investment in Holister, 31/12/18 |
$ 103,800 |
Requirement 2
Under fair value accounting, any increase in the fair value of investment in another company is to be reported as income. There is increase in $ 7,100 which is to be reported as income. Dividends are income under fair value accounting.
|
Dividend income ($19,000 × 40%) |
$ 7,600 |
|
Increase in fair value (99000 - 91900) |
$ 7,100 |
|
Investment income under fair value accounting—2018 |
$ 14,700 |
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On January 1, 2017, Alison, Inc., paid $79,100 for a 40 percent interest in Holister Corporation's...
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plz answer this Q chapter 10 Saved Help Save & Exit Submit Check my work 7...
plz answer this Q
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On January 1, 2017, Alison, Inc., paid $70,800 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $235,000 and liabilities of $95,000. A patent held by Holister having a $8,900 book value was actually worth $25,400. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $45,700 and declared and paid dividends of $15,000. In...
On January 1, 2017, Alison, Inc., paid $91,300 for a 40 percent
interest in Holister Corporation’s common stock. This investee had
assets with a book value of $243,500 and liabilities of $87,500. A
patent held by Holister having a $6,000 book value was actually
worth $60,000. This patent had a six-year remaining life. Any
further excess cost associated with this acquisition was attributed
to goodwill. During 2017, Holister earned income of $35,200 and
declared and paid dividends of $12,000. In...
plz answer this Q
chapter 10 Saved Help Save & Exit Submit Check my work 7 On January 1, 2020, Alison, Inc., paid $81,200 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $219,000 and liabilities of $80,500, A patent held by Holister having a $7,400 book value was actually worth $55,400. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to...
On January 1, 2017, Ridge Road Company acquired 30 percent of the voting shares of Sauk Trail, Inc., for $4,400,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridae Road made the investment to gain access to Sauk Trail's board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail's board which gave it the ability to significantly influence Sauk Trail's operating...
On January 1, 2017, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2017, Sacco reported net income of $50,000 and paid dividends of $20,000 while in 2018 it reported...
On January I, 2017, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2017, Sacco reported net income of $50,000 and paid dividends of $20,000 while in 2018 it reported...
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