Question
On January 1, 2014, Alison, Inc., paid $83,400 for a 40 percent interest in Holister Corporations common stock. This investee had assets with a book
On January 1, 2014, Alison, Inc., paid $83,400 for a 40 percent interest in Holister Corporations common stock. This investee had assets with a book value of $267,000 and liabilities of $100,000. A patent held by Holister having a $12,500 book value was actually worth $36,500. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2014, Holister earned income of $42,500 and declared and paid dividends of $14,000. In 2015, it had income of $72,700 and dividends of $19,000. During 2015, the fair value of Allisons investment in Holister had risen from $94,400 to $105,880. |
a. | Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2015? |
b. | Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2015? |
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