Question
On December 31, 2019, Akron, Inc., purchased 5 percent of ZipCompany's common shares on the open market in exchange for $17,400. On December 31, 2020,
On December 31, 2019, Akron, Inc., purchased 5 percent of ZipCompany's common shares on the open market in exchange for $17,400. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,250.
During the next two years, the following information is available for Zip Company:
IncomeDividends DeclaredCommon Stock
Fair Value (12/31)2019$326,0002020$79,000$7,100373,000202196,00015,300481,000
At December 31, 2020, Zip reports a net book value of $299,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020.
- Assume Akron applies the equity method to its Investment in Zip account:
- What amount of equity income should Akron report for 2021?
- On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
- Assume Akron uses fair-value accounting for its Investment in Zip account:
- What amount of income from its investment in Zip should Akron report for 2021?
- On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
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