Question

In: Accounting

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 reports a net book value of $283,000. Akron attributed any excess of its 30% 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. Using the appropriate accounting method, prepare all of the journal entries for Akron, Inc. regarding their investment in Zip stock for 2016. b. What is the balance in the Investment in Zip Company account on December 31, 2016? c. How much of Akron Inc.'s consideration for Zip's stock on December 31, 2017 is attributable to revaluation increments and decrements, goodwill or gain on bargain purchase?

Solutions

Expert Solution

on 31/12/2016

as on date of purchase

5% purchased for - $18000

less: dividend received - $240 (4800*5%)

net cost to akron - $17760

Fair value as on that date (100%) - $ 322000

5% fair value - $16100

entries in akron on 2016

investment in zip shares a/c dr $18000

to cash a/c $18000

cash a/c dr $ 240

to dividend received a/c $240

dividend received a/c dr $240

to investment in shares a/c $ 240

2017

purchased 25% shares for $93000

less:- dividend for 25% $1500 (25% of 6000)

net cost for 25% - $91500

net cost for 5% -$17760

total cost incurred - $109260

entries

investment in zip shares a/c dr $93000

to cash a/c $93000

cash a/c dr $ 1800

to dividend received a/c $1800

dividend received a/c dr $1800

to investment in shares a/c (25%) $ 1500

to P/L a/c (5%) $300

book value as on 31/12/17 - $283000

book value for 30% - $84900

fair value for 30% - $111600

difference is to be recongnised as goodwill - $26700

since the agreement is for 10years every year the amount of goodwill to be debited to P/L is 2670$

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

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...

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...

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, 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 ...

On December 31, 2016, Gary Company had 50,000 shares of common stock outstanding for the entire...

On December 31, 2016, Gary Company had 50,000 shares of common stock outstanding for the entire year. On March 1, 2017, Gary purchased 2,400 shares of common stock on the open market as treasury stock paying $45 per share. Gary sold 600 of the treasury shares on June 1, 2017, for $47 per share. Gary issued a 10% common stock dividend on 7/2/2017. In addition, Gary had 3,000 shares of 9%, $50 par value, noncumulative convertible preferred stock outstanding at...

Subjects