On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip’s Company's common shares on the open market in exchange for $16,000. 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 StockFair Value (12/31) 2016     $320,000 2017 $75,000 $7,000 380,000 2018 88,000 15,000 480,000     At December 31, 2017, Zip reports a net book value of $290,000. Akron attributed any excess of its 30 percent 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.   Assume Akron applies the equity method to its Investment in Zip account: What amount of equity income should Akron report for 2018? On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?   Assume Akron uses fair-value accounting for its Investment in Zip account: What amount of income from its investment in Zip should Akron report for 2018? On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

Question

On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip’s Company's common shares on the open market in exchange for $16,000. 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     $320,000
2017 $75,000 $7,000 380,000
2018 88,000 15,000 480,000
 

 

At December 31, 2017, Zip reports a net book value of $290,000. Akron attributed any excess of its 30 percent 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.

 

  1. Assume Akron applies the equity method to its Investment in Zip account:

  1. What amount of equity income should Akron report for 2018?
  2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

 

  1. Assume Akron uses fair-value accounting for its Investment in Zip account:

  1. What amount of income from its investment in Zip should Akron report for 2018?
  2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

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