On July 1, 2009, Gibson Company acquired 75,000 of the outstanding shares of Miller Company for $12
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As of July 1, 2009, the investee had assets with a book value of $2 million and liabilities of $400,000. At the time, Miller held equipment appraised at $150,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Miller also held a copyright with a five-year remaining life on its books that was undervalued by $650,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Gibson applies the equity method for its investment in Miller.
Miller's policy is to pay a $1 per share cash dividend every April 1 and October 1. Miller's income, earned evenly throughout each year, was $550,000 in 2009, $575,000 in 2010, and $620,000 in 2011.
In addition, Gibson sold inventory costing $90,000 to Miller for $150,000 during 2010. Miller resold $80,000 of this inventory during 2010 and the remaining $70,000 during 2011.
a. Prepare a schedule computing the equity income to be recognized by Gibson during each of these years.
b. Compute Gibson’s investment in Miller Company’s balance as of December 31, 2011.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Advanced Accounting
ISBN: 978-0077431808
10th edition
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
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