Smith purchased 5 percent of Barkers outstanding stock on October 1, 2009, for $7,475 and acquired an

Question:

Smith purchased 5 percent of Barker€™s outstanding stock on October 1, 2009, for $7,475 and acquired an additional 10 percent of Barker for $14,900 on July 1, 2010. Both of these purchases were accounted for as available-for-sale investments. Smith purchases a final 20 percent on December 31, 2011, for $34,200. With this final acquisition, Smith achieves the ability to significantly influence Barker€™s decision-making process and employs the equity method.
Barker has a book value of $100,000 as of January 1, 2009. Information follows concerning the operations of this company for the 2009€“2011 period. Assume that all income was earned uniformly in each year. Assume also that one-fourth of the total annual dividends are paid at the end of each calendar quarter.

On Barker€™s financial records, the book values of all assets and liabilities are the same as their fair values. Any excess cost from either purchase relates to identifiable intangible assets. For each purchase, the excess cost is amortized over 15 years. Amortization for a portion of a year should be based on months.
a. On comparative income statements issued in 2012 for the years of 2009, 2010, and 2011, what would Smith report as its income derived from this investment in Barker?
b. On a balance sheet as of December 31, 2011, what should Smith report as investment inBarker?

Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...