On January 2, Year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000....
On January 2, Year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod's equity was $500,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by $200,000. Pod reported net income of $100,000 for Year 1, and paid no dividends. Kean accounts for this investment using the equity method. In its December 31, Year 1, balance sheet, what amount should Kean report as investment in Pod Co.?
| A. |
$210,000 |
|
| B. |
$240,000 |
|
| C. |
$276,000 |
|
| D. |
$280,000 |
On January 1, Year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of Newman Corp.'s outstanding voting stock. For Year 1, Newman reported net income of $60,000 and paid dividends of $20,000. At year end, the fair value of Peabody's investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize in net income for Year 1, attributable to the investment?
|
$6,000 |
||
|
$10,000 |
||
|
$16,000 |
||
|
$18,000 |
Homework Answers
Answer 1)
In this equity method , investor company adjusts the carrying value of the investment for any changes in the investee company net assets.
Company k acquired 30% interest in company P for $250,000 on january 2, Year 1. Equity of company P was $500,000. Net income of company P was reported $100,000 and no dividends were paid by the company. It is require to calculate the investment for company K.
Equity amount of investment is computed below:
Purchase price of investment - 250,000
Share in net income(100,000*30%) - 30,000
Total amount of equity investment - $280,000
So, option D is correct
Answer 2)
In this particular case you will not recognize any of the income because they elected fair value option instead of equity option. You will record $10,000 of gain from increase in value (410 vs 400), and account for 30% of the dividends as income – $6000. The answer is $16,000.
So, option (C) is correct
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On January 2, Year 1, Kean Co. purchased a 30% interest in Pod
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Exercise 22-22
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On July 1, 2018, Headland paid $3,340,000 for 44,000 additional
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