Question:1)
\n On January 3, 2013, Matteson Corporation acquired 30 percent of the
\noutstanding common stock of O\u00e2\u0080\u0099Toole Company for $1,209,000. This
\nacquisition gave Matteson the ability to exercise significant influence
\nover the investee. The book value of the acquired shares was $840,000.
\nAny excess cost over the underlying book value was assigned to a
\ncopyright that was undervalued on balance sheet. This copyright has a
\nremaining useful life of 10 years. For the year ended December 31, 2013,
\n O\u00e2\u0080\u0099Toole reported net income of $308,000 and paid cash dividends of
\n$40,000. At December 31, 2013, what should Matteson report as its
\ninvestment in O\u00e2\u0080\u0099Toole under the equity method?2)
\n On January 1, 2012, Alison, Inc., paid $72,000 for a 40 percent
\ninterest in Holister Corporation\u00e2\u0080\u0099s common stock. This investee had
\nassets with a book value of $260,500 and liabilities of $115,500. A
\npatent held by Holister having a $10,200 book value was actually worth
\n$23,700. This patent had a six-year remaining life. Any further excess
\ncost associated with this acquisition was attributed to goodwill. During
\n 2012, Holister earned income of $39,000 and paid dividends of $13,000.
\nIn 2013, it had income of $61,500 and dividends of $18,000. During 2013,
\n the fair value of Allison\u00e2\u0080\u0099s investment in Holister had risen from
\n$84,500 to $92,700.a.Assuming
\n Alison uses the equity method, what balance should appear in the
\nInvestment in Holister account as of December 31, 2013? Investment in Holister $ b.Assuming Alison uses the fair-value option, what income from the investment in Holister should be reported for 2013? Investment income $ 3)
\n Waters, Inc., acquired 10 percent of Denton Corporation on January 1,
\n2012, for $274,300 although Denton\u00e2\u0080\u0099s book value on that date was
\n$2,190,000. Denton held land that was undervalued by $148,000 on its
\naccounting records. During 2012, Denton earned a net income of $315,000
\nwhile paying cash dividends of $118,000. On January 1, 2013, Waters
\npurchased an additional 30 percent of Denton for $779,250. Denton\u00e2\u0080\u0099s land
\n is still undervalued on that date, but then by $170,000. Any additional
\n excess cost was attributable to a trademark with a 10-year life for the
\n first purchase and a 9-year life for the second. The initial 10 percent
\n investment had been maintained at cost because fair values were not
\nreadily available. The equity method will now be applied. During 2013,
\nDenton reported income of $366,500 and distributed dividends of
\n$137,000.Prepare all of the 2013 journal entries for Waters.4)
\n On January 1, 2011, Monroe, Inc., purchased 10,300 shares of Brown
\nCompany for $267,800, giving Monroe 10 percent ownership of Brown. On
\nJanuary 1, 2012, Monroe purchased an additional 20,600 shares (20
\npercent) for $628,300. This latest purchase gave Monroe the ability to
\napply significant influence over Brown. The original 10 percent
\ninvestment was categorized as an available-for-sale security. Any excess
\n of cost over book value acquired for either investment was attributed
\nsolely to goodwill.Brown reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Net Income Cash Dividends(paid quarterly)2011 $416,000 $129,000 2012 546,000 166,000 2013 579,500 224,000
\n On July 1, 2013, Monroe sells 2,060 shares of this investment for $48
\n per share, thus reducing its interest from 30 to 28 percent. However,
\nthe company retains the ability to significantly influence Brown. Using
\nthe equity method, what amounts appear in Monroe\u00e2\u0080\u0099s 2013 income
\nstatement? (Input all amounts as positive values. Do not round
\nintermediate calculations. Round your answers to the nearest dollar
\namount.) As total income accrual (no unearned gains) $ As (Click to select)gain or loss on sale of shares $ 5)
\n Russell owns 30 percent of the outstanding stock of Thacker and has the
\n ability to significantly influence the investee\u00e2\u0080\u0099s operations and
\ndecision making. On January 1, 2013, the balance in the Investment in
\nThacker account is $382,000. Amortization associated with this
\nacquisition is $10,500 per year. In 2013, Thacker earns an income of
\n$156,000 and pays cash dividends of $39,000. Previously, in 2012,
\nThacker had sold inventory costing $54,600 to Russell for $78,000.
\nRussell consumed all but 20 percent of this merchandise during 2012 and
\nused the rest during 2013. Thacker sold additional inventory costing
\n$59,400 to Russell for $90,000 in 2013. Russell did not consume 40
\npercent of these 2013 purchases from Thacker until 2014.a.What amount of equity method income would Russell recognize in 2013 from its ownership interest in Thacker? Equity income $ b.What is the equity method balance in the Investment in Thacker account at the end of 2013? Investment in Thacker $ 6)
\n On January 1, 2012, Allan acquires 15 percent of Bellevue\u00e2\u0080\u0099s outstanding
\n common stock for $69,350. Allan classifies the investment as an
\navailable-for-sale security and records any unrealized holding gains or
\nlosses directly in owners\u00e2\u0080\u0099 equity. On January 1, 2013, Allan buys an
\nadditional 10 percent of Bellevue for $53,010, providing Allan the
\nability to significantly influence Bellevue\u00e2\u0080\u0099s decisions. During the next two years, the following information is available for Bellevue: Income Dividends Common StockFair Value (12\/31) 2012 $ 170,000 $ 120,000 $ 477,500 2013 201,200 135,600 524,300 In
\n each purchase, Allan attributes any excess of cost over book value to
\nBellevue\u00e2\u0080\u0099s franchise agreements that had a remaining life of 10 years at
\n January 1, 2012. Also at January 1, 2012, Bellevue reports a net book
\nvalue of $319,000.Assume Allan applies the equity method to its Investment in Bellevue account:a-1.On Allan\u00e2\u0080\u0099s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account? Investment in Bellevue $ a-2.What amount of equity income should Allan report for 2013? Equity income $ a-3.Prepare the January 1, 2013, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method.General Journal Debit Credit To eliminate AFS fair value adjustment account.
\n (Click to select)Fair Value Adjustment (Available-for-Sale
\nSecurities)Accounts ReceivableUnrealized Holding Gain-Shareholders’
\nEquityInvestment in BellevueAccounts PayableRetained Earnings (January
\n1, 2013)CashInterest Payable
\n (Click to select)Investment in BellevueAccounts PayableCashInterest
\n PayableUnrealized Holding Gain-Shareholders’ EquityAccounts
\nReceivableRetained Earnings (January 1, 2013)Fair Value Adjustment
\n(Available-for-Sale Securities) To record retrospective adjustment.
\n (Click to select)CashAccounts PayableInterest PayableFair Value
\nAdjustment (Available-for-Sale Securities)Retained Earnings (January 1,
\n2013)Investment in BellevueAccounts ReceivableUnrealized Holding
\nGain-Shareholders’ Equity
\n (Click to select)Fair Value Adjustment (Available-for-Sale
\nSecurities)Interest PayableAccounts ReceivableInvestment in
\nBellevueCashAccounts PayableRetained Earnings (January 1,
\n2013)Unrealized Holding Gain-Shareholders’ Equity Assume Allan elects the fair-value reporting option for its investment in Bellevue:b-1.On Allan\u00e2\u0080\u0099s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account? Investment in Bellevue $ b-2.What amount of income from its investment in Bellevue should Allan report for 2013? Reported income $ 7)
\n Hobson acquires 40 percent of the outstanding voting stock of Stokes
\nCompany on January 1, 2012, for $341,100 in cash. The book value of
\nStokes\u00e2\u0080\u0099s net assets on that date was $655,000, although one of the
\ncompany\u00e2\u0080\u0099s buildings, with a $65,200 carrying value, was actually worth
\n$125,450. This building had a 10-year remaining life. Stokes owned a
\nroyalty agreement with a 20-year remaining life that was undervalued by
\n$137,500.Stokes
\n sold inventory with an original cost of $107,100 to Hobson during 2012
\nat a price of $153,000. Hobson still held $25,050 (transfer price) of
\nthis amount in inventory as of December 31, 2012. These goods are to be
\nsold to outside parties during 2013.Stokes
\n reported a loss of $66,000 for 2012, $44,000 from continuing operations
\n and $22,000 from an extraordinary loss. The company still manages to
\npay a $6,000 cash dividend during the year.During
\n 2013, Stokes reported a $47,400 net income and distributed a cash
\ndividend of $8,000. It made additional inventory sales of $76,000 to
\nHobson during the period. The original cost of the merchandise was
\n$47,500. All but 30 percent of this inventory had been resold to outside
\n parties by the end of the 2013 fiscal year.Prepare
\n all journal entries for Hobson for 2012 and 2013 in connection with
\nthis investment. Assume that the equity method is applied. (Do not round
\n intermediate calculations.)<\/p>\n","protected":false},"excerpt":{"rendered":"
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