Problem 1-26 (Algo) (LO 1-2, 1-4, 1-5)

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,750. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,000.

During the next two years, the following information is available for Zip Company:

	Income	Dividends Declared	Common Stock Fair Value (12/31)
2019			$315,000
2020	$84,000	$6,500	384,000
2021	86,000	14,400	476,000

At December 31, 2020, Zip reports a net book value of $300,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020.

1. Assume Akron applies the equity method to its Investment in Zip account:

1. What amount of equity income should Akron report for 2021?
2. On Akrons December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

1. Assume Akron uses fair-value accounting for its Investment in Zip account:

1. What amount of income from its investment in Zip should Akron report for 2021?
2. On Akrons December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

a1. Equity income a2. Investment in Zip account b1. Reported income b2. Investment in Zip account