On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,300. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,250. During the next two years, the following information is available for Zip Company: Income Dividends Declared Common Stock Fair Value (12/31) 2019 $326,000 2020 $79,000 $7,100 373,000 2021 96,000 15,300 481,000 At December 31, 2020, Zip reports a net book value of $299,000. 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. Assume Akron applies the equity method to its Investment in Zip account: What amount of equity income should Akron report for 2021? 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 $16,300. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,250. During the next two years, the following information is available for Zip Company: Income Dividends Declared Common Stock Fair Value (12/31) 2019 $326,000 2020 $79,000 $7,100 373,000 2021 96,000 15,300 481,000 At December 31, 2020, Zip reports a net book value of $299,000. 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. Assume Akron applies the equity method to its Investment in Zip account: What amount of equity income should Akron report for 2021? 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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Question
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,300. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,250.
During the next two years, the following information is available for Zip Company:
| Income | Dividends Declared | Common Stock Fair Value (12/31) |
|
| 2019 | $326,000 | ||
| 2020 | $79,000 | $7,100 | 373,000 |
| 2021 | 96,000 | 15,300 | 481,000 |
At December 31, 2020, Zip reports a net book value of $299,000. 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.
-
Assume Akron applies the equity method to its Investment in Zip account:
- What amount of equity income should Akron report for 2021?
- On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
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