Question
On January 1, 2020, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporations common stock. This investee had assets with a book
On January 1, 2020, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2020, Holister earned income of $30,000 and declared and paid dividends of $10,000. In 2021, it had income of $50,000 and dividends of $15,000. During 2021, the fair value of Allison’s investment in Holister had risen from $68,000 to $75,000.
Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2021?
On January 1, 2020, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2020, Holister earned income of $30,000 and declared and paid dividends of $10,000. In 2021, it had income of $50,000 and dividends of $15,000. During 2021, the fair value of Allison’s investment in Holister had risen from $68,000 to $75,000.
Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2021?
| 16 | (Investment account after 2 years with fair value option included) | ||
| a. | Acquisition price | ||
| Book value-assets minus liabilities ($125,000 x 40%) | 50,000 | ||
| Excess payment | |||
| Value of patent in excess of book value ($15,000 x 40%) | 6,000 | ||
| Goodwill | |||
| Amortization: | |||
| Patent ($6,000 ÷ 6) | 1,000 | ||
| Goodwill | 4,000 | ||
| Annual amortization | |||
| Acquisition price | |||
| Basic equity accrual 2020 ($30,000 × 40%) | 12,000 | ||
| Dividends—2020 ($10,000 × 40%) | |||
| Amortization—2020 (above) | |||
| Investment in Holister, 12/31/20 | |||
| Basic equity accrual —2021 ($50,000 × 40%) | 20,000 | ||
| Dividends—2021 | |||
| Amortization—2021 (above) | |||
| Investment in Holister, 12/31/21 | $80,000 | ||
I have filled in some but am not sure if I need to do all of them or how and not sure what I have is correct or not. I started with an excel sheet all answers on right were blank everything on left was there from the teacher.
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
