On January 1, 2012, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2012, Holister earned income of $30,000 and paid dividends of $10,000. In 2013, it had income of $50,000 and dividends of $15,000. During 2013, the fair value of Allison’s investment in Holister had risen from $68,000 to $75,000.
a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2013?
b. Assuming Alison uses the fair-value option, what income from the investment in Holister should be reported for 2013?
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