Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for...

Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for $501,300. At the time of the combination, Station reported common stock outstanding of $121,000 and retained earnings of $381,000, and the fair value of the noncontrolling interest was $55,700. The book value of Station’s net assets approximated market value except for patents that had a market value of $55,000 more than their book value. The patents had a remaining economic life of ten years at the date of the business combination. Station reported net income of $75,000 and paid dividends of $20,000 during 20X1.

Required:
a. What balance did Public report as its investment in Station at December 31, 20X1, assuming Public uses the equity method in accounting for its investment?

Solutions

Expert Solution

Answer 1

Cost of investment acquired	501,300
Dividend Received (Less)	(18,000)
Income From Investment	67,500
Amortization of patent (Less)	(4,950)
Investment in Station at December 31, 20X1	545,850

Explain:-

	Method : - Equity method
Date	General Journal	Debit	Credit
January 1, 20X1	Investment in Station Company	501,300
	Cash		501,300
	(To record Purchase of Investment.)

during 20X1	Cash	18,000
	Investment in Station Company		18,000
	(To record Dividend Received.) (20000*90%)

during 20X1	Investment in Station Company	67,500
	Income from Equity Investment		67,500
	(To record Income from Equity Investment. ) (75000*90%)

during 20X1	Income from Equity Investment	4,950
	Investment in Station Company		4,950
	(To Record amortization for patents excess fair value.) ((55000/10)*90%)

ekkarill92 answered 1 year ago

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