Question

In: Accounting

On January 2, 2016 Alan Corporation acquired 35% if the voting stock of Hamlen Company for...

On January 2, 2016 Alan Corporation acquired 35% if the voting stock of Hamlen Company for $4,000,000 in cash.  During 2016 Hamlen reported total income of $600,000.  Hamlen sold $5,000,000 in merchandise to Alan at a markup of 20% on cost; $312,000 remains in Alan's ending inventory.  Compute Alan's equity in net income of Hamlen for 2016 on Alan's books.

Solutions

Expert Solution

Alan's Share in Profit $600000×35% $210000
Less: Unrealised profit lying in Alan's Ending Inventory in proportion of Elans shre 52000×35% $18200
Alan's Equity in Net income of Hamlen Company $191800

Unrealised Profit included in Ending inventory of Alan's

Ending inventory include 20% extra

So cost of Ending inventory =312000/120% =260000

Profit included in Ending Inventory = 312000-260000 =$52000

GAAP recognises three method of financial reporting of Equity investment  

1) Fair Value

2) Consolidation of Financial statement

3) Equity method

Equity method employs the accrual basis for recognising the investor's share of Investee income , Investor recognized increase in investment value according to their ownership in investee.

Under Equity method ,investment is initially recognise at cost and get increase or decrease as per the investor share in profit .

Equity accounting is usually applied where an investor entity holds 20–50% of the voting stock of the associate company.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Grant Company acquired 40% of the voting stock of Jake Corporation on January 1, 2016, for...
Grant Company acquired 40% of the voting stock of Jake Corporation on January 1, 2016, for $50,000,000. Basis differences were attributed entirely to goodwill. During the 5-year period from January 1, 2016 through December 31, 2020, Jake reported total net income of $23,000,000 and paid $8,000,000 in dividends. During 2021, Jake reported net income of $3,000,000 and paid $800,000 in dividends. Required: a. Calculate the balance in Investment in Jake, reported on Grant’s December 31, 2020 balance sheet. b. Calculate...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock. The book values of Sander's individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The...
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $7,467,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,549,500 including retained earnings of $1,749,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander...
On January 1, 2016, Plymouth Corporation acquired 80 percent of the outstanding voting stock of Sander Company in exchange for $1,200,000 cash. At that time, although Sander’s book value was $925,000, Plymouth assessed Sander’s total business fair value at $1,500,000. Since that time, Sander has neither issued nor reacquired any shares of its own stock. The book values of Sander's individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The...
On January 1, 2016, Acorn company acquired an 80% interest in Bengal company’s voting stock for...
On January 1, 2016, Acorn company acquired an 80% interest in Bengal company’s voting stock for $288,000. On that date Bengal had a $300,000 book value and the fair value of the non-controlling interest was $72,000. On January 1, 2017, Bengal acquired 80% of Canaris Company for $104,000 when Canaris had a $100,000 book value and the value of the non-controlling interest was $26,000. In each acquisition, the excess of fair value over book value was assigned to Tradename with...
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $424,000....
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $424,000. Birch reported a $425,000 book value and the fair value of the noncontrolling interest was $106,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $232,000 when Cedar had a $218,000 book value and the 20 percent noncontrolling interest was valued at $58,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to...
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $460,000....
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $460,000. Birch reported a $470,000 book value and the fair value of the noncontrolling interest was $115,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $164,000 when Cedar had a $124,000 book value and the 20 percent noncontrolling interest was valued at $41,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to...
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $504,000....
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company's voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary's excess acquisition-date fair over book value was assigned to...
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company’s voting stock for $288,000....
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company’s voting stock for $288,000. Birch reported a $300,000 book value, and the fair value of the noncontrolling interest was $72,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $104,000 when Cedar had a $100,000 book value and the 20 percent noncontrolling interest was valued at $26,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to...
On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough...
On January 2, 2017, SPU Corporation acquired 30% of the outstanding voting common stock of Brough Company for $335,000. This investment enabled SPU to exercise significant influence over Brough.     The book value of the acquired shares was $315,000 (the book value of Brough Co was $1,050,000). The excess of cost over book value was attributed to a building that was undervalued on Brough’s balance sheet and that had a remaining useful life of 10 years.       For the year...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT