Reference no: EM132916981
Question - On January 1, 2020, Alison, Inc., paid $79,100 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $253,000 and liabilities of $117,000. A patent held by Holister having a $5,900 book value was actually worth $38,900. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2020, Holister earned income of $41,750 and declared and paid dividends of $14,000. In 2021, it had income of $64,000 and dividends of $19,000. During 2021, the fair value of Allison's investment in Holister had risen from $91,900 to $99,000.
Required -
1. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2021?
2. Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2021?
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