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Concept explainers
Equity method
• LO12-6, LO12-7
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.
c. Statement of
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Chapter 12 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- Exercise 12-22 (Algo) Equity method; adjustment for depreciation [LO12-6, 12-7] Fizer Pharmaceutical paid $85 million on January 2, 2024, for 5 million shares of Carne Cosmetics common stock. The investment represents a 20% interest in the net assets of Carne and gave Fizer the ability to exercise significant influence over Carne's operations. Fizer received dividends of $3 per share on December 21, 2024, and Carne reported net income of $35 million for the year ended December 31, 2024. The fair value of Carne's common stock at December 31, 2024, was $35.50 per share. • The book value of Carne's net assets was $210 million. The fair value of Carne's depreciable assets exceeded their book value by $50 million. These assets had an average remaining useful life of ten years. • The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill. Required: Complete the table below and prepare the appropriate journal entries…arrow_forwardProblem 3 On January 1, 2021, CPA Co. acquired 15,000 ordinary shares out of 100,000 outstanding ordinary shares of PLDT Inc. for P300,000. The book value of the net asset of PLDT is the same with its fair value. During 2021, PLDT declared P2 per share cash dividend. The net income of PLDT for 2022 is P400,000. On January 1, 2022, CPA Co. acquired additional 5,000 ordinary shares of PLDT Inc. As a result, the cost method of accounting for investment should be replaced by the equity method on January 1, 2022. _2. What is the cumulative effect of this accounting change to January 1, 2022 Retained Earnings assuming income tax rate is 30%? Indicate whether debit or credit.arrow_forwardQuestion 7 During 2020, Crane Company purchased 91000 shares of Novak Corporation common stock for $1370000 as an equity investment. The fair value of these shares was $1299000 at December 31, 2020. Crane sold all of the Novak stock for $16 per share on December 3, 2021, incurring $67000 in brokerage commissions. Crane Company should report a realized gain on the sale of stock in 2021 of $86000. $19000. $157000. $90000.arrow_forward
- #13 YOO-YOO Company purchased 200 of the 1000 outstanding shares of WEBUL Company's common stock for $710000 on January 2, 2021. In 2021, WEBUL Company declared dividends of $155000 and reported earnings for the year of $510000.If YOO-YOO Company used the fair value method of accounting for its investment in WEBUL Company, its Equity Investments (WEBUL) account on December 31, 2021, should be $812000. $710000. $679000. $781000.arrow_forwardQuestion 10 On January 2, 2020, Tuao Company purchased 10% of Abulug Company’s outstanding ordinary shares for P20,000,000. Tuao is the largest single shareholder in Abulug and this gives Tuao the power to participate in the financial and operating policy decisions of the Abulug but is not control or joint control over those policies. Abulug reported profit of P10,000,000 and paid dividend of P4,000,000. What should be the balance in Tuao’s investment in Abulug Company at the end of 2020? Group of answer choices P20,600,000 P21,000,000 P20,000,000 P21,400,000arrow_forwardCh TB MC Qu. 01-16 Borgin Inc, owns 30% of the outstanding... Borgin Inc. owns 30% of the outstanding voting common stock of Burkes Co. and has the ability to significantly influence the investee's operations and decision-making. On January 1, 2021, the balance in the Investment in Burkes Co. account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2021, Burkes earned income of $108,000 and paid cash dividends of $36,000. Previously in 2020, Burkes had sold inventory costing $28,800 to Borgin for $48,000. All but 25% of this merchandise was consumed by Borgin during 2020. The remainder wos used during the first few weeks of 2021. Additional sales were made to Borgin in 2021; inventory costing $33,600 was transferred at a price of $60,000. Oor this total, 40% was not consumed until 2022. What was the balance in the Investment in Burkes Co. account at the end of 2021?arrow_forward
- zion 9 Assume that on Dec. 31, 2014, Paul's Investment in Saint Account has a balance of $ 438,000. Paul's 80 % interest in Saint has a fair value of $ 468,000. On January 1, 2015, Paul sells all of its Saint shares for $ 450,000. What is the gain/loss on sale? OAS 15000 Loss OBS 12000 Gain OCS 33000 Loss OD.S 33000 Gain Lying to another question will save this response.arrow_forward26 Sniper Company purchased on January 2, 2019, a new set of furniture and fixtures by issuing 5,000 of its P100 par value shares (FV on this date is P110), in addition to P200,000 cash paid in connection to purchase. The P200,000 is broken as follows: Freight and delivery charges P80,000 Non-refundable purchase taxes 70,000 Furniture cover* 50,000 Total P200,000 *the furniture cover was requested by the company president because he wanted his office furniture looks good. The cover does not enhance the asset. The furniture and fixture are depreciated using 1.5 declining balance with an estimated useful life of four years and salvage value of P80,000. What is the amount of depreciation expense – furniture and fixtures should Sniper Company recognized in its December 31, 2022 income statement?arrow_forward10 On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable assets and liabilities being measured at amounts equal to fair value. The table below shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss) 2015 200,000 2016 2,000,000 2017 2,500,000 2018 160,000 2019 300,000 How much will the Investment in Associate account be debited/credited in 2018? Group of answer choices No entry P40,000 Dr. P1,035,000 Cr. P1,060,000 Cr.arrow_forward
- INVESTMENT IN ASSOCIATE Problem 7 On January 1, 2020, Elite Company paid P 18,000,000 for 50,000 ordinary shares of Craze Company which represent a 25% interest in the in the net assets of Craze. The acquisition cost is equal to the carrying amount of the net assets acquired. Elite has the ability to exercise significant influence over Craze. Elite received a dividend of P35 per share from Craze in 2020. Craze reported net income of P9,600,000 for the year ended December 31, 2020. In the December 31, 2020 statement of financial position, what amount should be reported as investment in Craze Company? a. 22,150,000 b. 20,400,000 c. 18,650,000 d. 18,000,000 Problem 8 On July 1, 2015, Denver Company purchased 30,000 shares of Eagle Company's 100,000 outstanding ordinary shares for P200 per share. On December 15, 2015, Eagle paid P400,000 in dividends to its share ordinary shareholders. Eagle's net income for the year ended December 31, 2015 was P1,200,000, earned evenly throughout the…arrow_forwardWhat amount of income from the investment should be Problem 17-11 (AICPA Adapted) On July 1, 2021, Focus Company purchased 30,000 shares of Eagle Company's 100,000 outstanding ordinary shares for P200 per share. On December 15, 2021, Eagle Company paid P1,000,000 dividends. Eagle Company's net income for 2021 wee P5,000,000 earned evenly throughout the year. reported for the current year? a. 500,000 b. 300,000 c. 750,000 d. 150,000 518arrow_forward. Exercise 12-20 (Algo) Equity method; purchase; Investee Income; dividends [LO12-6] As a long-term investment at the beginning of the 2024 fiscal year, Florists International purchased 25% of Nursery Supplies Incorporated's 10 million shares for $65 million. The fair value and book value of the shares were the same at that time. During the year, Nursery Supplies earned net income of $24 million and distributed cash dividends of $0.80 per share. At the end of the year, the fair value of the shares is $61 million. Required: Prepare the appropriate journal entries from the purchase through the end of the year. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions, (i.e., 10,000,000 should be entered as 10). View transaction list Journal entry worksheet < 1 2 3 4 Record the investment in Nursery Supplies shares.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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