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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 2015, it had income of $62,750 and dividends of $19,000. During 2015, the fair value of Allison’s investment in Holister had risen from $104,280 to $108,880.
a.

Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2015?
b.

Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2015?

Solutions

Expert Solution

a. 116,980

Initial Investment Value      91,800.00
Share of Net Income-2014      16,880.00
Dividend Received-2014      (5,600.00)
Additional Amortization patent -2014      (1,800.00)
Share of Net Income-2015      25,100.00
Dividend Received-2015      (7,600.00)
Additional Amortization patent -2015      (1,800.00)
Value of Investment as on 31st Dec 2015    116,980.00

b)

The Investment will be shown at Fiar Value of 108,880.

Dividend Income        7,600.00 This is reported in Income Statement
Unrealised Gain (Change in Fair Value)        4,600.00 This is reported in Stockholder's Equity
If it is Availabe for sale securities. And in Income Statement if it is held for Trading Securities.


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ekkarill92 answered 1 year ago
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