Check my work 8 Problem 1-16 (LO 1-3, 1-4, 1-7) On January 1, 2017, Alison, Inc.
ID: 2604941 • Letter: C
Question
Check my work 8 Problem 1-16 (LO 1-3, 1-4, 1-7) On January 1, 2017, Alison, Inc. paid $60,000 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $200.000 and liabilities of $75,000 A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister eamed income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Alison's investment in Holister had risen from $68,000 to $75,000 oints ebook a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, References 2018? b. Assuming Altson uses fair-value accounting. what income from the investment in Holister should be reported for 2018 nvestment in Holister Investment incomeExplanation / Answer
Solution:
Investment in Holister
$80,000
Investment income
$13,000
Explanation:
PART-1
Acquisition price
$60,000
Book value ($125,000 * 40%)
$50,000
Excess payment
$10,000
Value of patent in excess of BV ($15,000 * 40%)
$6,000
Goodwill
$4,000
Amortization:
Patent ($6,000 / 6)
$1,000
Goodwill
$0
Annual amortization
$1,000
Acquisition price
$60,000
Basic equity accrual 2017 ($30,000 * 40%)
$12,000
Dividends Year 2017 ($10,000 * 40%)
-$4,000
Amortization - Year 2017
-$1,000
Investment in Holister 31-12-2017
$67,000
Basic equity accrual Year 2018 ($50,000 * 40%)
$20,000
Dividends Year 2018 ($15,000 * 40%)
-$6,000
Amortization Year 2018
-$1,000
Investment in Holister, 31-12-2018
$80,000
PART-2
Dividend income ($15,000 * 40%)
$6,000
Increase in fair value ($75,000-$68,000)
$7,000
Investment income under fair value accounting - year 2018
$13,000
Investment in Holister
$80,000
Investment income
$13,000