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On December 31, 2019, Akron, Ic., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,500. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $94,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $321,000 376,000 478,000 Dividends Income Declared 2019 2020 2021 $79,000 89,000 $6,200 15,800 At December 31, 2020, Zip reports a net book value of $280,000. Akron attributed any excess of its 30 percent share of Zip's fair ov book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020. a. Assume Akron applies the equity method to its Investment in Zip account:

On December 31, 2019, Akron, Ic., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,500. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $94,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $321,000 376,000 478,000 Dividends Income Declared 2019 2020 2021 $79,000 89,000 $6,200 15,800 At December 31, 2020, Zip reports a net book value of $280,000. Akron attributed any excess of its 30 percent share of Zip's fair ov book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020. a. Assume Akron applies the equity method to its Investment in Zip account:

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 8MC
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On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,500. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $94,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $321,000 376,000 478,000 Dividends Income Declared 2019 $79,000 89,000 $6,200 15,800 2020 2021 At December 31, 2020, Zip reports a net book value of $280,000. 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, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account? b. 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 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
Transcribed Image Text:On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,500. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $94,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $321,000 376,000 478,000 Dividends Income Declared 2019 $79,000 89,000 $6,200 15,800 2020 2021 At December 31, 2020, Zip reports a net book value of $280,000. 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, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account? b. 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 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
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