Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 1, Problem 16P
a.
To determine
Introduction: The equity method of accounting is a method where the investment is recognized at cost initially and thereafter accounted for based on the change in the investor’s share in investee net assets. The share in the investee’s profit or loss is included in the investor's profit or loss. Fair value method initial investment is recorded at cost and then is adjusted with fair value.
The value investment in H using the equity method at the end of December 31, 2021.
b.
To determine
Introduction: The equity method of accounting is a method where the investment is recognized at cost initially and thereafter accounted for based on the change in the investor’s share in investee net assets. The share in the investee’s profit or loss is included in the investor's profit or loss. Fair value method initial investment is recorded at cost and then adjusted with fair value.
The income from investment in H using the fair value method at the end of December 31, 2021.
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On January 1, 2020, Alison, Inc., paid $77,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $223,000 and liabilities of $94,500. A patent held by Holister having a $10,800 book value was actually worth $52,800. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2020, Holister earned income of $48,700 and declared and paid dividends of $16,000. In 2021, it had income of $74,500 and dividends of $21,000. During 2021, the fair value of Allison’s investment in Holister had risen from $90,580 to $100,180.
Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2021?
Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2021?
On January 1, 2020. Alison, Inc., paid $69,500 for a 40 percent interest in Holister Corporation's common stock. This investee had
assets with a book value of $219,500 and liabilities of $95,500. A patent held by Holister having a $12,000 book value was actually
worth $31,500. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to
goodwill. During 2020, Holister earned income of $32,500 and declared and paid dividends of $11,000. In 2021, it had income of
$71,500 and dividends of $16,000. During 2021, the fair value of Allison's investment in Holister had risen from $79,200 to $89,900.
a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31,
2021?
b. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2021?
a.
Investment in Holister
b.
Investment income
On January 1, 2023, Bertrand Incorporated paid $70,800 for a 40% interest in Chestnut Corporation's common stock. This investee had assets with a book value of $235,000 and liabilities of $95000. A patent held by Chestnut having a book value of $8900 was actually worth $25,400. This patent had a six year remaining life. Any further excess cost associated with this acquisition was attributed to an indefinite-lived asset. During 2023, Chestnut earned income of $45,700 and declared and paid dividends of $20,000. During 2024, the fair value of Bertrand's investment in Chestnut had risen from $84,080 to $88,960. Assuming Bertrand uses the quity method, what balnace should appear in the investment in Chestnut account as of December 31, 2024? Assuming Bertrand uses fair-value accounting, what income from the investment in Chestnut should be reported for 2024?
Chapter 1 Solutions
Advanced Accounting
Ch. 1 - What advantages does a company achieve when it...Ch. 1 - A company acquires a rather large investment in...Ch. 1 - What accounting treatments are appropriate for...Ch. 1 - Prob. 4QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 6QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 8QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 10Q
Ch. 1 - Prob. 11QCh. 1 - Prob. 12QCh. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 14QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 16QCh. 1 - Prob. 17QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8PCh. 1 - Evan Company reports net income of $140,000 each...Ch. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 16PCh. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Prob. 23PCh. 1 - Matthew, Inc., owns 30 percent of the outstanding...Ch. 1 - Prob. 26PCh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Prob. 30PCh. 1 - Prob. 31P
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