On January 1, 2014, Alison, Inc., paid $72,000 for a 40 percent interest in Holi

Question

On January 1, 2014, Alison, Inc., paid $72,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $260,500 and liabilities of $115,500. A patent held by Holister having a $10,200 book value was actually worth $23,100. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2014, Holister earned income of $38,000 and declared and paid dividends of $12,000. In 2015, it had income of $61,500 and dividends of $18,000. During 2015, the fair value of Allison’s investment in Holister had risen from $84,500 to $92,700.

Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2015?

Assuming Alison uses fair-value accounting, what income from the investment in Holister should be reported for 2015?

Explanation / Answer

Calculation of Balance should be appear through equity method:- Particular Amount Acquisition Price $72,000 Book Value: Asset-Liability $58,000 ($260500-$115500)*40% Excess Payment $14,000 Value of patient excess thn book value (23100-10200)*40% $5,160 Goodwill $8,840 AMORTISATION Patient(5160/6) $860 Goodwill 0 Annual amortization $860 Acqusition price $72,000 Basic equity accrual2012($38000*40%) $15,200 Dividend(12000*40%) ($4,800) Annual amortization ($860) Investment as on 31.12.12 $81,540 Basic equity accrual2013 (61500*40%) $24,600 Dividend in 2013(18000*40%) ($7,200) Amortization 2013 ($860) Investment as on 31.12.13 $98,080

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