On January 2, 2018, Miller Properties paid $19 million for 1 million shares of Marlon Company’s 6 million outstanding common shares. Miller’s CEO became a member of Marlon’s board of directors during the first quarter of 2018.The carrying amount of Marlon’s net assets was $66 million. Miller estimated the fair value of those netassets to be the same except for a patent valued at $24 million above cost. The remaining amortization period forthe patent is 10 years.Marlon reported earnings of $12 million and paid dividends of $6 million during 2018. On December 31,2018, Marlon’s common stock was trading on the NYSE at $18.50 per share.Required:1. When considering whether to account for its investment in Marlon under the equity method, what criteriashould Miller’s management apply?2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2018:a. Income statementb. Balance sheetc. Statement of cash flows
On January 2, 2018, Miller Properties paid $19 million for 1 million shares of Marlon Company’s 6 million outstanding common shares. Miller’s CEO became a member of Marlon’s board of directors during the first quarter of 2018.
The carrying amount of Marlon’s net assets was $66 million. Miller estimated the fair value of those net
assets to be the same except for a patent valued at $24 million above cost. The remaining amortization period for
the patent is 10 years.
Marlon reported earnings of $12 million and paid dividends of $6 million during 2018. On December 31,
2018, Marlon’s common stock was trading on the NYSE at $18.50 per share.
Required:
1. When considering whether to account for its investment in Marlon under the equity method, what criteria
should Miller’s management apply?
2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2018:
a. Income statement
b. Balance sheet
c. Statement of cash flows
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