Question

On December 31, 2016, Akron purchased 5 Percent of Zip's common shares on the open market in exchange for $24,000. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $99,000. During the next two years, the following information is available for Zip Company: Income Dividends 2016 2017 2018 Common Stock Fair Value (12/31) $480,000 396,000 499,000 77,000 91,800 7,300 15,600 At December 31, 2017, Zip reports a net book value of $301,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to franchise agreements that had a remaining life of 10 years at December 31, 2017 a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2018? Equity income 2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account? Investment in Zip

Answer 1

Answers Pageno Allocation and annual amortization on Dec 31, 2017 Particulars Amount | Purchak Price of a5% Interest $99000 Carry ng amovent of 5% infreşt( 396000x52) $19,800 Total faior Valuees ($99000+$ 14,800) $118,800 Net book value $ 301000 X 30% ) $ 90, 300) Franchise Agreemeneş ($118,800-$90300 $28,500 Remaining life of frauclise agreemenke lo years Annual Amortization ( 28500 10 years) $2850 o Equity income of 2018 Particulars Amount Toquity income accural in 2018 18 (91.800X307) 27.540 (285) Less: Amortization in 2018 $24,690 Equity Income of 2018 2) Investment in Zip Accouent Particulars Amount ($) Total fair value in Dec 31, 2017 118,800 Equity income in 20.18 24,690 Less:-Dividend of 2018 (15600X.30) (4630) Investment in zip $138,810

6) Pageno ܨܐܢ & Income from investment in Zipr Amounted) Particulars Dividend Income ($15600X 307.) Add. - Increak in fais valee ($499000 $396000)xes30,900 Total income from investment in zip $35,580 4680 2, Investment in zipr = $ 499000 X 30% del $ 169,700