Question

In: Accounting

On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company's common shares on the...

On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company's common shares on the open market in exchange for $15,500. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $95,000.

During the next two years, the following information is available for Zip Company:

	Income	Dividends Declared	Common Stock Fair Value (12/31)
2016			$325,000
2017	$82,000	$7,400	380,000
2018	94,000	14,800	477,000

At December 31, 2017, Zip reports a net book value of $294,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2017.

a. Assume Akron applies the equity method to its Investment in Zip account:

1. What amount of equity income should Akron report for 2018?

2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

b. Assume Akron uses fair-value accounting for its Investment in Zip account:

1. What amount of income from its investment in Zip should Akron report for 2018?

2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

a1	equity income	$
a2	investment in Zip account	$
b1	reported income	$
b2	investment in Zip account	$

Expert Solution

Ans- a- Allocation and annual amortization -12/31/2017:-

Purchase price of 25% interest	$95,000
Add:Carrying amount of 5% interest ($380,000*5%)	$19,000
Total fair value of A's investment in Z accounts	$114,000
Less:Net book value ($294,000*30%)	($88,200)
Franchise agreements	$25,800
Remaining life of franchise agreements	10 years
Annual amortization ($25,800/ 10 years)	$2,580

a-1- Calculating Equity Income that should A report for 2018

2018 basic equity income accural ($94,000*30%)	$28,200
Less:2018 amortization (above)	($2,580)
Equity income 2018	$25,620

a-2- On A's December 31,2018 balance sheet the amount of investment in Z account reported as follows:

December 31,2017 total fair value	$114,000
Add:2018 basic equity income (above)	$25,620
Less: 2018 dividends ($14,800*30%)	($4,440)
Investment in Z-December 31,2018	$135,180

Ans-b-1- Assume A uses fair-value accounting for its investment in Z account:

Calculating amount of income from its investment in Z should A report for 2018

Dividend income ($14,800*30%)	$4,440
Add:Increase in fair value ($477,000-$380,000)*30%	$29,100
Total report income from investment in Z	$33,540

b-2- On Akron;s December 31,2018 balance sheet amount of investment in Z as follows:

Investment in Z ( $477,000*30%)

$143,100

Conclusion:-

a-1- Equity income	$25,620
a-2- Investments in Z account	$135,180
b-1- Reported income	$33,540
b-2-Investment in Z account	$143,100

Kindly give thumbsup if u like my answer please ....Thanks!!!

ekkarill92 answered 1 year ago

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the...

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $17,100. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $95,000. During the next two years, the following information is available for Zip Company: Income Dividends Declared Common Stock Fair Value (12/31) 2019 $313,000 2020 $68,000 $6,600 380,000 2021 85,000 14,400 470,000 At December 31, 2020, Zip reports a net...

On December 31, 2016, Akron, Inc. purchased 5% of Zip’s Company's common shares on the open...

On December 31, 2016, Akron, Inc. purchased 5% of Zip’s Company's common shares on the open market in exchange for $18,000. On December 31, 2017, Akron, Inc. acquires an additional 25% of Zip Company's outstanding common stock for $93,000. During the next two years, the following information is available for Zip Company: Net Income Dividends Declared Common Stock Fair Value (12/31) 2015 $268,000 2016 $55,200 $4,800 322,000 2017 69,000 6,000 372,000 2018 82,000 15,600 484,000 At December 31, 2017, Zip...

Grouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on December 31, 2016....

Grouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on December 31, 2016. The purchase price was $904,000 for 45,200 shares, and is equal to 10% of Gregson’s carrying amount. Gregson declared and paid a $0.80 per share cash dividend on June 15 and again on December 15, 2017. Gregson reported net income of $516,000 for 2017. The fair value of Gregson’s shares was $24 per share at December 31, 2017. Grouper is a public company and...

On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub...

On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub Company for $8,750,000 million in cash. On that date, the shareholders’ equity of Sub consisted of $2 million in common shares and $6 million in retained earnings. For the year ended December 31, Year 10, the income statements for Par and Sub were as follows: Par Sub Sales $ 24,800,000 $ 12,000,000 Other Income 4,000,000 1,000,000 Cost of goods sold 18,000,000 8,200,000 Depreciation expense...

On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million...

On December 31, 2017, Berclair Inc. had 560 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $950 million. The income tax rate...

On December 31, 2017, Berclair Inc. had 400 million shares of common stock and 5 million...

On December 31, 2017, Berclair Inc. had 400 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $550 million. The income tax rate...

On December 31, 2017, Berclair Inc. had 320 million shares of common stock and 5 million...

On December 31, 2017, Berclair Inc. had 320 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $350 million. The income tax rate...

On December 31, 2015, Berclair Inc. had 442 million shares of common stock and 5 million...

On December 31, 2015, Berclair Inc. had 442 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. Net income for the year ended December 31, 2016, was $1,050 million. Also outstanding at December 31 were incentive stock options granted to executives. The options were exercisable for 30 million common shares at an exercise price of $56 per share. During 2016, the market price of the common shares averaged $70...

On December 31, 2016, Pam Corporation purchased 80 percent of the stock of Sun Company at...

On December 31, 2016, Pam Corporation purchased 80 percent of the stock of Sun Company at book value. The data reported on their separate balance sheets immediately after the acquisition follow. At December 31, 2016, Pam Corporation owes Sun $20,000 on accounts payable. (All amounts are in thousands.) Pam Sun Assets Cash $128 $72 Accounts Receivable 180 136 inventories 572 224 investments in Sun 800 0 Equipment- Net 1520 700 3200 1132 Liabilites and Stockholders' Equity accounts payable 160 132...

On December 31, 20X4, Peterson Corporation purchased shares of Sullivan Inc.

ICP 4 On December 31, 20X4, Peterson Corporation purchased shares of Sullivan Inc. by issuing its own shares worth $1,500,000. Peterson’s and Sullivan’s statements of financial position immediately after the purchase transaction were as follows: Peterson Sullivan Sullivan Carrying Carrying Fair value Value value Cash $260,000 $110,000 $110,000 Accounts receivable 670,000 350,000 350,000 Inventory 1,200,000 920,000 1,050,000 Land 800,000 250,000 340,000 Buildings and equipment 2,500,000 700,000 650,000 Investment in Sullivan 1,500,000 $6,930,000 $2,330,000 ...