Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 13P
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.
The equity method balance of M Corporation’s investment in OT Company. at December 31, 2021.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
On January 3, 2021, Matteson Corporation acquired 30 percent of the outstanding common stock of O'Toole Company for $1,462, 000. This acquisition gave Matteson the
ability to exercise significant influence over the investee. The book value of the acquired shares was $859, 000. Any excess cost over the underlying book value was assigned
to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2021, O'Toole reported
net income of $350, 000 and declared cash dividends of $45, 000. On December 31, 2021, what should Matteson report as its investment in O'Toole under the equity
method?
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?
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?
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
Knowledge Booster
Similar questions
- On January 1, 2021, Pine Company owns 40 percent (76,000 shares) of Seacrest, Inc., which it purchased several years ago for $423,700. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $549,100. Excess patent cost amortization of $22,800 is still being recognized each year. During 2021, Seacrest reports net income of $558,000 and a $228,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 15,200 shares of Seacrest on August 1, 2021, for $165,354 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $59,000 in inventory (which it had originally purchased for only $35,400) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $14,600 (at sales price) of this merchandise, which was subsequently sold in the first quarter…arrow_forwardOn January 2, 2021, E Company acquired 20% of the outstanding ordinary shares of T Company for P700,000.00. This investment gave E Company the ability to exercise significant influence over T Company. The book value of the acquired shares was P600,000.00. The excess of cost over book value was attributed to a depreciable asset which was undervalued on T Company's balance sheet and which had ten years useful life remaining. For the year ended December 31, 2021, T Company reported net income after tax of P180,000.00 and paid cash dividends of P60,000.00 on its ordinary. Income tax rate is 32%. How much is the carrying value of E Company's investment in T Company at December 31, 2021? P678,000.00 P690,000.00 P714,000.00 P717,200.00arrow_forwardOn January 3, 2020, Gladstone Corporation purchased 30% of the outstanding voting common stock of Hancock Company for $610,000. This purchase gave Gladstone the ability to exercise significant influence over the operating and financial policies of Hancock. On the date of purchase, Hancock's books reported assets of $3,000,000 and liabilities of $800,000. Any excess of cost over book value of Gladstone's investment was attributed to a patent with a remaining useful life of ten years. During 2020, Hancock reported net income of $295,000 and declared and paid cash dividends of $80,000. In the following year, 2021, Hancock reported net income of $325,000 and declared and paid cash dividends of $75,000. In 2020, Gladstone sold inventory costing $55,000 to Hancock for $70,000. Hancock sold 65% of that inventory to outsiders during 2020 with the remainder being sold in 2021. During 2021, Gladstone sold inventory costing $45,000 to Hancock for $85,000. Hancock sold 90% of that inventory to…arrow_forward
- On January 1, 2021, Pine Company owns 40 percent (84,000 shares) of Seacrest, Ic., which it purchased several years ago for $449,400. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $588,000. Excess patent cost amortization of $25,200 is still being recognized each year. During 2021, Seacrest reports net income of $606,000 and a $252,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 16,800 shares of Seacrest on August 1, 2021, for $170,401 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $61,000 in inventory (which it had originally purchased for only $36,600) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $13,300 (at sales price) of this merchandise, which was subsequently sold in the first quarter of…arrow_forwardOn January 1, 2021, Pine Company owns 40 percent (140,000 shares) of Seacrest, Inc., which it purchased several years ago for $644,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $875,000. Excess patent cost amortization of $42,000 is still being recognized each year. During 2021, Seacrest reports net income of $942,000 and a $420,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 28,000 shares of Seacrest on August 1, 2021, for $223,454 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $75,000 in inventory (which it had originally purchased for only $45,000) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $12,300 (at sales price) of this merchandise, which was subsequently sold in the first quarter…arrow_forwardOn 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 incomearrow_forward
- On January 1, 2018, Pine Company owns 40 percent (40,000 shares) of Seacrest, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2018, is $293,600. Excess patent cost amortization of $12,000 is still being recognized each year. During 2018, Seacrest reports net income of $342,000 and a $120,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 8,000 shares of Seacrest on August 1, 2018, for $93,000 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2017, Pine sold $50,000 in inventory (which it had originally purchased for only $30,000) to Seacrest. At the end of that fiscal year, Seacrest’s inventory retained $10,000 (at sales price) of this merchandise, which was subsequently sold in the first quarter of…arrow_forwardOn January 1, 2024, Pine Company owns 40 percent (124,000 shares) of Seacrest, Incorporated, which it purchased several years ago for $700,600. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2024, is $905,200. Excess patent cost amortization of $37,200 is still being recognized each year. During 2024, Seacrest reports net income of $846,000 and a $372,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 24,800 shares of Seacrest on August 1, 2024, for $236,528 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2023, Pine sold $71,000 in inventory (which it had originally purchased for only $42,600) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $12,800 (at sales price) of this merchandise, which was subsequently sold in the first…arrow_forwardOn January 1, 2018, Pine Company owns 40 percent (40,000 shares) of Seacrest, Inc., which it purchased several years ago for $182,000. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2018, is $293,600. Excess patent cost amortization of $12,000 is still being recognized each year. During 2018, Seacrest reports net income of $342,000 and a $120,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 8,000 shares of Seacrest on August 1, 2018, for $93,000 in cash. However, Pine retains the ability to significantly influence the investee.During the last quarter of 2017, Pine sold $50,000 in inventory (which it had originally purchased for only $30,000) to Seacrest. At the end of that fiscal year, Seacrest’s inventory retained $10,000 (at sales price) of this merchandise, which was subsequently sold in the first quarter of…arrow_forward
- On January 1, 2023, Palka, Incorporated, acquired 70 percent of the outstanding shares of Sellinger Company for $1,328,600 in cash. The price paid was proportionate to Sellinger's total fair value, although at the acquisition date, Sellinger had a total book value of $1,660,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger's accounting records by $228,000. On January 1, 2024, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $510,000 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger. During the two years following the acquisition, Sellinger reported the following net income and dividends: Items Net income Dividends declared. Required: a. Show Palka's journal entry to record its January 1, 2024, acquisition of an additional 25 percent ownership of Sellinger Company shares. b.…arrow_forwardIn January 2020, Marcus, Inc., acquired 20 percent of the outstanding common stock of Lily, Inc., for $769,000. This investment gave Marcus the ability to exercise significant influence over Lily, whose balance sheet on that date showed total assets of $4,199,000 with liabilities of $909,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2020, Lily reported net income of $222,000. In 2021, Lily reported net income of $268,250. Dividends of $79,000 were declared in each of these two years. What is the equity method balance of Marcus's Investment in Lily, Inc., at December 31, 2021? Multiple Choice $919,150. $813,250. $835,450. $908,050.arrow_forwardIn January 2020, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $856,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $4,634,000 with liabilities of $974,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2020, Martes reported net income of $259,000. In 2021, Martes reported net income of $302,250. Dividends of $73,000 were declared in each of these two years. What is the equity method balance of Domingo’s Investment in Martes, Inc., at December 31, 2021? Multiple Choice $914,250. $1,001,850. $1,014,250. $939,050.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning