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?

Solutions

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 1 year ago

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