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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 2 years ago
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