Question
Oolie Corp. paid $6 million to acquire a 25% interest in Ketchum Corp. common stock on January 1, 2014. This investment results in Oolie having
Oolie Corp. paid $6 million to acquire a 25% interest in Ketchum Corp. common stock on January 1, 2014. This investment results in Oolie having significant influence over Ketchums operations. The book values of Ketchums reported net assets approximate their fair values, except for $2 million in identifiable unrecorded intangible assets that have a four-year remaining useful life on January 1, 2014. Ketchum has no unidentifiable intangibles (i.e., there is no implied goodwill). During 2014, Ketchum reports net income of $900,000. During 2014, Ketchum also reports, as part of other comprehensive income, $30,000 in unrealized losses on available for sale (AFS) debt securities that were purchased in 2014. Ketchum declared and paid dividends of $240,000 during 2014. (Hint: you might want to check out in FASB ASC sections 323-10-35-18 and 323-10-45-3.)
Prepare Oolies journal entries for its investment in Ketchum for the year ended December 31, 2014.
For the year ended December 31, 2014, what is the effect on the net income of Oolie of equity method accounting for the investment in Ketchum?
For the year ended December 31, 2014, what is the effect on the comprehensive income of Oolie of equity method accounting for the investment in Ketchum?
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