In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $700,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $3,900,000 with liabilities of $900,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years.
In 2017, Martes reported net income of $170,000. In 2018, Martes reported net income of $210,000. Dividends of $70,000 were declared in each of these two years. What is the equity method balance of Domingo’s Investment in Martes, Inc., at December 31, 2018?
a. $728,000
b. $748,000
c. $756,000
d. $776,000
Want to see the full answer?
Check out a sample textbook solutionChapter 1 Solutions
Soft Bound Version for Advanced Accounting 13th Edition
- On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forwardOn January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.arrow_forwardOn January 1, 2017, Alison, Inc., paid $800,000 for a 40 percent interest in Hollister Corporation’s common stock. This investee had assets with a book value of $300,000 and liabilities of $175,000. A patent held by Hollister having a $5,000 book value was worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Hollister earned income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Allison’s investment in Hollister had risen from $68,000 to $75,000. Assuming Alison uses the equity method, what balance should appear in the Investment in Hollister account as of December 31, 2018? Assuming Alison uses fair-value accounting, what income from the investment in Hollister should be reported for 2018? (Acquisition price is $100,000)arrow_forward
- In January 2020, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $856,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $4,634,000 with liabilities of $974,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2020, Martes reported net income of $259,000. In 2021, Martes reported net income of $302,250. Dividends of $73,000 were declared in each of these two years. What is the equity method balance of Domingo’s Investment in Martes, Inc., at December 31, 2021? Multiple Choice $914,250. $1,001,850. $1,014,250. $939,050.arrow_forwardOn July 1, 2016, Killearn Company acquired 120,000 of the outstanding shares of Shaun Company for $15 per share. This acquisition gave Killearn a 20 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions. As of July 1, 2016, the investee had assets with a book value of $7 million and liabilities of $148,000. At the time, Shaun held equipment appraised at $581,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,235,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun. Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $566,000 in 2016, $593,400 in 2017,…arrow_forwardBuyCo, Inc. holds 25 percent of the outstanding shares of Marqueen Company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2017, Marqueen reported earnings of $100,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory for $50,000, which it then sold to BuyCo for $80,000. At the end of 2017, BuyCo continued to hold merchandise with a transfer price of $32,000.a. What Equity in Investee Income should BuyCo report for 2017?b. How will the intra-entity transfer affect BuyCo’s reporting in 2018?c. If BuyCo had sold the inventory to Marqueen, how would the answers to (a) and (b) have changed?arrow_forward
- On July 1, 2016, Killearn Company acquired 80,000 of the outstanding shares of Shaun Company for $12 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions. As of July 1, 2016, the investee had assets with a book value of $3 million and liabilities of $938,000. At the time, Shaun held equipment appraised at $350,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,160,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun. Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $585,000 in 2016, $617,600 in 2017,…arrow_forwardOn January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,141,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,380,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $240,000. On January 1, 2018, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $415,000 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.During the two years following the acquisition, Sellinger reported the following net income and dividends:Show Palka’s journal entry to record its January 1, 2018, acquisition of an additional 25 percent ownership of Sellinger Company shares.Prepare a schedule showing Palka’s December 31, 2018, equity…arrow_forwardOn January 1, 2016, Cameron Inc. bought 20% of the outstanding common stock of Lake Construction Company for $300 million cash. At the date of acquisition of the stock, Lake’s net assets had a fair value of $900 million. Their book value was $800 million. The difference was attributable to the fair value of Lake’s buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2016, was $150 million. During 2016, Lake declared and paid cash dividends of $30 million. The buildings have a remaining life of 10 years. Required: 1. Prepare all appropriate journal entries related to the investment during 2016, assuming Cameron accounts for this investment by the equity method. 2. Determine the amounts to be reported by Cameron: a. As an investment in Cameron’s 2016 balance sheet. b. As investment revenue in the income statement. c. Among investing activities in the statement of cash flows.arrow_forward
- On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,666,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,070,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $300,000. On January 1, 2018, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $656,250 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger. During the two years following the acquisition, Sellinger reported the following net income and dividends: 2017 2018 $525,000 $701,000 Net…arrow_forwardOn January 1, 2016, PAR Inc. purchased 65% of the shares of SUB Co. for $8,000 when retained earnings of SUB was $9,500. The investment is recorded at cost by PAR and the FVE method was used to value goodwill. At the date of the acquisition, trademarks with a fair value of $500 were identified that were not recorded on the books of SUB. Also, the building was valued at $200 higher than book value. The trademarks had a remaining useful life of 8 years, and the building had a remaining useful life of 40 years, at that time. PAR booked a goodwill impairment loss on goodwill resulting from the SUB acquisition of $136 in 2019. During 2020, PAR Inc. reported income of $800 and Sub Co. $570. Dividends of $100 were paid by Sub to PAR. At December 31, 2020, the entity retained earnings of PAR Inc. is $16,500 and SUB Co. is $10,700. At the end of 2019, PAR had $190 of inventory still on its books that was purchased from SUB (cost $145). At the end of 2020, PAR had $115 of inventory still on…arrow_forwardOn January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,000 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren’s consolidated balance sheet at December 31, 2018?a. $28,000b. $35,000c. $36,000d. $40,000arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College