On January 1, 2017, Alison, Inc, paid $60,000 for a 40 percent interest in Holis

Question

On January 1, 2017, Alison, Inc, paid $60,000 for a 40 percent interest in Holister Corporation's common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5.000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to Il During 2017, Holister earned income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of goodwil $50.000 and dividends of $15,000. During 2018, the fair value of Allison's investment in Holister had risen from $68.000 to $75.000 s the equity method, what balance should appear in the Investment in Holister account as of December 31 a. Assuming Alison uses the equity method, what balance should appear in the Invest s fair-value accounting. what income from the investment in Holister should be reported for 2018? Investment in Holister Investment income

Explanation / Answer

b)

A) Acquisition price 60000 Book value—assets minus liabilities ($125,000 × 40%) 50000 Excess payment 10000 Value of patent in excess of book value ($15,000 × 40%) 6000 Goodwill 4000 Amortization: Patent ($6,000 ÷ 6) 1000 Goodwill 0 Annual Amortization 1000 Acquisition price 60000 Basic equity accrual 2017 ($30,000 * 40%) 12000 Dividends—2017 ($10,000 × 40%) (4000) Amortization—2017 (above) (1000) Investment in Holister, 12/31/17 67000 Basic equity accrual —2018 ($50,000 *40 %) 20000 Dividends—2018 ($15,000 x 40%) (6000) Amortization—2018 (above) (1000) Investment in Holister, 12/31/18 80000

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