Solution-Problem - equity method, Problem

Problem - equity method

Reference no: EM132452319

Problem - Equity Method

On January 1, 2015, Investor acquires 15% of Investee's outstanding common stock for $104,000 and accounts for the purchase using fair value. On January 1, 2016, Investor buys an additional 10% of Investee for $87,600, and begins applying the equity method. During the two years, Investee reports the following:

	Income	Dividends
2015	$160,000	$60,000
2016	200,000	80,000

In each purchase, Investor attributes any excess of cost over book value to an intangible asset that Investee amortizes. The intangible has had a remaining life of 10 years at January 1, 2015. As of December 31, 2016, Investees reports a net book value of $780,000.

Required -

(1) On Investor's 31, 2016, balance sheet, what amount is reported for the Investment in Investee account?

(2) What amount of equity income should Investor report for 2016?

(3) Prepare the January 1, 2016, journal entry to retroactively adjust the Investment in Investee account to the equity method? You may ignore any fair value adjustments that normally would be made.

Reference no: EM132452319

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Problem - equity method

Reference no: EM132452319

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