On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,750. During the next two years, the following information is available for Zip Company: Common Stock Fair Value 2019 2020 2021 Dividends Declared Income $69,000 17,100 89,000 14,700 (12/31) $324,000 387,000 477,000 my work At December 31, 2020, Zip reports a net book value of $289,000. 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?
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,750. During the next two years, the following information is available for Zip Company: Common Stock Fair Value 2019 2020 2021 Dividends Declared Income $69,000 17,100 89,000 14,700 (12/31) $324,000 387,000 477,000 my work At December 31, 2020, Zip reports a net book value of $289,000. 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?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 26E
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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 $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common
stock for $96,750.
During the next two years, the following information is available for Zip Company:
Common Stock
Fair Value
2019
2020
2021
Income
Dividends
Declared
$69,000
$7,100
89,000 14,700
(12/31)
$324,000
387,000
477,000
Check my work
At December 31, 2020, Zip reports a net book value of $289,000. 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?
Transcribed Image Text: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?
a1. Equity income
a2 Investment in Zip account
b1. Reported income
b2. Investment in Zip account
$
23,760
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