Question
On January 1, 2014, Allan acquires 15 percent of Bellevues outstanding common stock for $62,000. Allan classifies the investment as an available-for-sale security and records
On January 1, 2014, Allan acquires 15 percent of Bellevues outstanding common stock for $62,000. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners equity. On January 1, 2015, Allan buys an additional 10 percent of Bellevue for $43,800, providing Allan the ability to significantly influence Bellevues decisions. |
During the next two years, the following information is available for Bellevue: |
Income | Dividends | Common Stock Fair Value (12/31) | |
2014 | $ 80,000 | $30,000 | $438,000 |
2015 | 100,000 | 40,000 | 468,000 |
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In each purchase, Allan attributes any excess of cost over book value to Bellevues franchise agreements that had a remaining life of 10 years at January 1, 2014. Also at January 1, 2014, Bellevue reports a net book value of $280,000. |
a. | Assume Allan applies the equity method to its Investment in Bellevue account: |
1. | On Allans December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account? |
2. | What amount of equity income should Allan report for 2015? |
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