Question

In: Accounting

On January 1, 2018, Roland, Inc., paid $200,000 for a 40% interest in Holt Corp.’s common...

On January 1, 2018, Roland, Inc., paid $200,000 for a 40% interest in Holt Corp.’s common stock. This investee had assets with a book value of $250,000 and liabilities of $10,000. A patent held by Holt having a $5,000 book value was actually worth $25,000. A building held by Holt had a book value of $70,000 and a fair value of $120,000. The patent had a remaining useful life of 5 years while the building had a 10 year remaining life. Any further excess cost was associated with goodwill. During 2018, Holt earned income of $60,000 and paid dividends of $8,000. During 2019, it had income of $80,000 and dividends of $12,000. During 2019, the fair value of Roland’s investment in Holt had risen from $210,000 to $230,000.

1. Assuming the equity method, what balance should appear in the investment in Holt account as of Dec. 31, 2019?

2. Assuming Roland uses fair-value accounting, what income from the investment in Holt should be reported in 2018?

3. Assuming Roland uses fair-value accounting, what income from the investment in Holt should be reported in 2019?

4. Assuming Roland uses fair-value accounting, what is the value of the investment account at the end of 2018?

5. Assuming Roland uses fair-value accounting, what is the value of the investment account at the end of 2019?

Expert Solution

Ans to Q1

Under equity method, investment account will have a balance of $ 248,000

Ans to Q2

Under Fair value accounting income from investment in holt in 2018 would be $13200

Ans to Q3

Under Fair value accounting income from investment in holt in 2019 would be $24800

Ans to Q4

Under Fair Value accounting income method, investment account will have a balance of $ 210,000

Ans to Q5

Under Fair Value accounting income method, investment account will have a balance of $ 230,000

ekkarill92 answered 2 years ago

On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash.

On January 1, 2012, P Corp acquired 80% of the outstanding common stock of S Corp for $820,000. On January 1, 2018, P Corp sold $120,000 of land to S Corp for cash. The cost of the land was $50,000 at the date of the transfer. Also on January 1, 2018, P Corp transferred equipment to S Corp for $20,000 cash. The equipment originally cost $26,000 and has a book value of $15,000 (three-year remaining useful life). During 2019,...

On January 1, 2017, Alison, Inc., paid $85,700 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $85,700 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $256,000 and liabilities of $83,500. A patent held by Holister having a $9,800 book value was actually worth $20,300. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $48,000 and declared and paid dividends of $16,000. In...

On January 1, 2020, Alison, Inc., paid $91,200 for a 40 percent interest in Holister Corporation’s...

On January 1, 2020, Alison, Inc., paid $91,200 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $268,500 and liabilities of $98,500. A patent held by Holister having a $9,500 book value was actually worth $36,500. 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 $42,200 and declared and paid dividends of $14,000. In...

On January 1, 2015, Aly Inc., paid $83,800 for a 40 percent interest in Holy Corporation’s...

On January 1, 2015, Aly Inc., paid $83,800 for a 40 percent interest in Holy Corporation’s common stock. This investee had assets with a book value of $290,500 and liabilities of $117,000. A patent held by Holy having a $13,600 book value was actually worth $31,600. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2015, Holy earned income of $40,700 and dividends of $14,000 and the fair value...

On January 1, 2017, Alison, Inc., paid $90,400 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $90,400 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $248,500 and liabilities of $93,500. A patent held by Holister having a $12,300 book value was actually worth $55,800. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $52,500 and declared and paid dividends of $18,000. In...

On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, 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 2017, Holister earned income of $30,000 and declared and paid dividends of $10,000. In...

On January 1, 2014, Alison, Inc., paid $91,200 for a 40 percent interest in Holister Corporation’s...

On January 1, 2014, Alison, Inc., paid $91,200 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $268,500 and liabilities of $98,500. A patent held by Holister having a $9,500 book value was actually worth $36,500. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2014, Holister earned income of $42,200 and declared and paid dividends of $14,000. In...

On January 1, 2017, Alison, Inc., paid $70,800 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $70,800 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $235,000 and liabilities of $95,000. A patent held by Holister having a $8,900 book value was actually worth $25,400. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $45,700 and declared and paid dividends of $15,000. In...

On January 1, 2017, Alison, Inc., paid $83,600 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $83,600 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $279,500 and liabilities of $118,500. A patent held by Holister having a $6,800 book value was actually worth $42,800. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $33,500 and declared and paid dividends of $11,000. In...

On January 1, 2017, Alison, Inc., paid $91,300 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $91,300 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $243,500 and liabilities of $87,500. A patent held by Holister having a $6,000 book value was actually worth $60,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $35,200 and declared and paid dividends of $12,000. In...