Reference no: EM132685876
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $14,000. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,000.
During the next two years, the following information is available for Zip Company:
Income Dividends Declared Common Stock
Fair Value (12/31)
2019 $315,000
2020 $84,000 $6,500 384,000
202 186,000 14,400 476,000
At December 31, 2020, Zip reports a net book value of $300,000. 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.
Question 1: 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?
Question 2: Assume Akron uses fair-value accounting for its Investment in Zip account:
- What amount of income from its investment in Zip 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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