Question

In: Accounting

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 2018, it had income of $52,000 and dividends of $21,000. During 2018, the fair value of Allison’s investment in Holister had risen from $99,100 to $105,100.

a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2018?

b. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2018?

Solutions

Expert Solution

a Assumung Alison uses the equity method, balance that should appear in the
investment in Holister account as of December 31, 2018
Consideration paid for 40% share $85,700
Less: Book value of 40% net asset value ($256000-$83500) $69,000
Excess of fair value over book value $16,700
Excess allocated to
Patent- 40% (20300-9800) $4,200
Goodwill $12,500
Investment in Holister account on Jan 1, 2017 $85,700
Add: Net income of Holister for 2017-40% $19,200
Less: Dividend received-40% $6,400
Less: Patent amortization $700
Investment in Holister account on Dec 31, 2017 $97,800
Add: Net income of Holister for 2018-40% $20,800
Less: Dividend received-40% $8,400
Less: Patent amortization $700
Investment in Holister account on Dec 31, 2018 $109,500
b Assuming Alison uses fair value accounting, Income from the investment in Holister
that should be reported for 2018
Dividend paid by Holister $21,000
40% share of Alison $8,400
Changes in Fair value (105100-99100) $6,000
Income from Investment in Holister $14,400

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

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, 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...
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 $70,500 for a 40 percent interest in Holister Corporation’s...
On January 1, 2017, Alison, Inc., paid $70,500 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $224,500 and liabilities of $96,500. A patent held by Holister having a $13,300 book value was actually worth $41,800. 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 $51,500 and declared and paid dividends of $17,000. 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, 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, 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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT