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Equity Method Transactions and Reporting




Equity Method Transactions and Reporting;On January 3, 2013, Matteson Corporation acquired 40 percent of the outstanding common stock of O?Toole Company for $1,160,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $820,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2013, O?Toole reported net income of $260,000 and paid cash dividends of $50,000. At December 31, 2013, what should Matteson report as its investment in O?Toole under the equity method?;Investment account after one year;Waters, Inc., acquired 10 percent of Denton Corporation on January 1, 2010, for $210,000 although Denton?s book value on that date was $1,700,000. Denton held land that was undervalued by $100,000 on its accounting records. During 2010, Denton earned a net income of $240,000 while paying cash dividends of $90,000. On January 1, 2011, Waters purchased an additional 30 percent of Denton for $600,000. Denton?s land is still undervalued on that date, but then by $120,000. Any additional excess cost was attributable to a trademark with a 10year life for the first purchase and a 9year life for the second. The initial 10 percent investment had been maintained at cost because fair values were not readily available. The equity method will now be applied. During 2011, Denton reported income $300,000 and distributed dividends of $110,000.Prepare all of the 2011 journal entries for Waters.;Equity entries for one year, includes conversion to equity method.;Entry One?To record second acquisition of Denton stock;Account Title Debit Credit;Entry Two?To restate reported figures for 2013 to the equity method for comparability;Account Title Debit Credit;Entry Three?To record income for the year;Account Title Debit Credit;Entry Four?To record collection of dividends from Denton;Account Title Debit Credit;Entry Five?To record amortization for 2013;Account Title Debit Credit;Investment Sales Transactions and Reporting;On 1st January, 2009, Plano Company acquired 8 % (16,000 shares) of the outstanding voting shares of the Sumter Company for $192,000, an amount equal to Sumter's underlying book and fair value. Sumter pays a cash dividend to its stockholders each year of $100,000 on September 15. Sumter reported net income of $300,000 in 2009, $360,000 in 2010, $400,000 in 2011, and $380,000 in 2012. Each income figure will be assumed to have been earned evenly throughout its respective year. In addition, the fair value of these 16,000 shares was indeterminate, and therefore the investment account remained at cost. On 1st January, 2011, Plano purchased an additional 32 percent (64,000 shares) of Sumter for $965,750 in cash and began to use the equity method. This price represented a $50,550 payment in excess of the book value of Sumter's underlying net assets. Plano was willing to make this extra payment because of a lately developed patent held by Sumter with a 15-year remaining life. All other assets were considered suitably valued on Sumter's books.;On 1st July, 2012, Plano sold 10 % (20,000 shares) of Sumter's outstanding shares for$425,000 in cash. Although it sold this interest, Plano maintained ability to considerably influence Sumter's decision-making process. Suppose that Plano uses a weighted average costing system.


Paper#23931 | Written in 18-Jul-2015

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