On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company\'s common s

Question

On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company's common shares on the open market in exchange for $17,500. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $97,500 During the next two years, the following information is available for Zip Company: Common Stock Dividends Fair Value (12/31) $313,000 390,000 486, 000 Income Declared 2016 2017 $77,000 $7,500 2018 94,00014, 800 At December 31, 2017, Zip reports a net book value of $296,000. 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 2017 a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2018? 2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account? b. Assume Akron uses fair-value accounting for its Investment in Zip account: 1. What amount of income from its investment in Zip should Akron report for 2018? 2. On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account? a1. Equity income a2. Investment in Zip account b1. Reported income b2. Investment in Zip account

Explanation / Answer

Akron Equity income = Share iZip's profits = 94,000*30%= $28,200 Investment in zip account cost of Investement on 31 dec 2016 17,500 Add :Investment 97,500 Add:share profits of 2017 a4 30% = 23,100 Less:share dividend of 2,250 Add:Share profits of 2018 of 28,200 Less:share dividend 4440 Net investment inZip 159610

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