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Anderson acquires 10 percent of the outstanding voting shares of Barringer on January 1, 2013, for...

Anderson acquires 10 percent of the outstanding voting shares of Barringer on January 1, 2013, for $108,740 and categorizes the investment as an available-for-sale security. An additional 20 percent of the stock is purchased on January 1, 2014, for $251,750, which gives Anderson the ability to significantly influence Barringer. Barringer has a book value of $937,000 at January 1, 2013, and records net income of $254,000 for that year. Barringer declared and paid dividends of $140,000 during 2013. The book values of Barringer’s asset and liability accounts are considered as equal to fair values except for a copyright whose value accounted for Anderson’s excess cost in each purchase. The copyright had a remaining life of 16 years at January 1, 2013.

Barringer reported $308,000 of net income during 2014 and $448,000 in 2015. Dividends of $184,000 are declared and paid in each of these years. Anderson uses the equity method

If Anderson sells its entire investment in Barringer on January 1, 2016, for $503,930 cash, what is the impact on Anderson’s income?

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Annual Amortization - First Purchase
Purchase Price of 10% Interest 108740
Less: Net Book Value 937000*10% -93700
Copyright Value 15040
Life 16
Annual Amortization-First Purchase 15040/16 940
Annual Amortization - Second Purchase
Purchase Price of 20% Interest 251750
Less: Net Book Value (937000 will increase by Net Income 254000 and decrease by dividend 140000) (937000+254000-140000)*20% -210200
Copyright Value 41550
Life 15
Annual Amortization-Second Purchase 2770
Equity Income-2013
2013 Equity Income 254000*10% 25400
Less: Amortization-First (From Above) -940
Net Equity Income - 2013 24460
Equity Income-2014
2014 Equity Income 308000*30% 92400
Less: Amortization-First (From Above) -940
Less: Amortization-Second (From Above) -2770
Net Equity Income - 2014 88690
Equity Income-2015
2015 Equity Income 448000*30% 134400
Less: Amortization-First (From Above) -940
Less: Amortization-Second (From Above) -2770
Net Equity Income - 2015 130690
Calculation of Investment Book Value as on 1/1/16
Purchase Price 1 Jan 2013 108740
Add: Equity Income 2013 From Above 24460
Less: Dividend 2013 140000*10% -14000
Purchase Price 1 Jan 2014 251750
Add: Equity Income 2014 From Above 88690
Less: Dividend 2014 184000*30% -55200
Add: Equity Income 2015 From Above 130690
Less: Dividend 2015 184000*30% -55200
Investment Book Value 12/31/2015 479930
Sale Value 503930
Gain on Sale of Investment 503930-479930 24000

ekkarill92 answered 1 year ago
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