Question
On January 1, 2017, Alison, Inc., paid $95,200 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book
On January 1, 2017, Alison, Inc., paid $95,200 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $245,000 and liabilities of $75,500. A patent held by Holister having a $12,600 book value was actually worth $53,100. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $54,700 and declared and paid dividends of $18,000. In 2018, it had income of $61,200 and dividends of $23,000. During 2018, the fair value of Allison's investment in Holister had risen from $109,880 to $113,460.
a.Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2018?
b.Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2018?
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