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On January 3, 2013, Matteson Corporation acquired 30




Question;Question:1);On January 3, 2013, Matteson Corporation acquired 30 percent of the;outstanding common stock of O?Toole Company for $1,209,000. This;acquisition gave Matteson the ability to exercise significant influence;over the investee. The book value of the acquired shares was $840,000.;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 $308,000 and paid cash dividends of;$40,000. At December 31, 2013, what should Matteson report as its;investment in O?Toole under the equity method?2);On January 1, 2012, 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;$23,700. This patent had a six-year remaining life. Any further excess;cost associated with this acquisition was attributed to goodwill. During;2012, Holister earned income of $39,000 and paid dividends of $13,000.;In 2013, it had income of $61,500 and dividends of $18,000. During 2013;the fair value of Allison?s investment in Holister had risen from;$84,500 to $92,700.a.Assuming;Alison uses the equity method, what balance should appear in the;Investment in Holister account as of December 31, 2013? Investment in Holister $ b.Assuming Alison uses the fair-value option, what income from the investment in Holister should be reported for 2013? Investment income $ 3);Waters, Inc., acquired 10 percent of Denton Corporation on January 1;2012, for $274,300 although Denton?s book value on that date was;$2,190,000. Denton held land that was undervalued by $148,000 on its;accounting records. During 2012, Denton earned a net income of $315,000;while paying cash dividends of $118,000. On January 1, 2013, Waters;purchased an additional 30 percent of Denton for $779,250. Denton?s land;is still undervalued on that date, but then by $170,000. Any additional;excess cost was attributable to a trademark with a 10-year life for the;first purchase and a 9-year 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 2013;Denton reported income of $366,500 and distributed dividends of;$137,000.Prepare all of the 2013 journal entries for Waters.4);On January 1, 2011, Monroe, Inc., purchased 10,300 shares of Brown;Company for $267,800, giving Monroe 10 percent ownership of Brown. On;January 1, 2012, Monroe purchased an additional 20,600 shares (20;percent) for $628,300. This latest purchase gave Monroe the ability to;apply significant influence over Brown. The original 10 percent;investment was categorized as an available-for-sale security. Any excess;of cost over book value acquired for either investment was attributed;solely to goodwill.Brown reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Net Income Cash Dividends(paid quarterly)2011 $416,000 $129,000 2012 546,000 166,000 2013 579,500 224,000;On July 1, 2013, Monroe sells 2,060 shares of this investment for $48;per share, thus reducing its interest from 30 to 28 percent. However;the company retains the ability to significantly influence Brown. Using;the equity method, what amounts appear in Monroe?s 2013 income;statement? (Input all amounts as positive values. Do not round;intermediate calculations. Round your answers to the nearest dollar;amount.) As total income accrual (no unearned gains) $ As (Click to select)gain or loss on sale of shares $ 5);Russell owns 30 percent of the outstanding stock of Thacker and has the;ability to significantly influence the investee?s operations and;decision making. On January 1, 2013, the balance in the Investment in;Thacker account is $382,000. Amortization associated with this;acquisition is $10,500 per year. In 2013, Thacker earns an income of;$156,000 and pays cash dividends of $39,000. Previously, in 2012;Thacker had sold inventory costing $54,600 to Russell for $78,000.;Russell consumed all but 20 percent of this merchandise during 2012 and;used the rest during 2013. Thacker sold additional inventory costing;$59,400 to Russell for $90,000 in 2013. Russell did not consume 40;percent of these 2013 purchases from Thacker until 2014.a.What amount of equity method income would Russell recognize in 2013 from its ownership interest in Thacker? Equity income $ b.What is the equity method balance in the Investment in Thacker account at the end of 2013? Investment in Thacker $ 6);On January 1, 2012, Allan acquires 15 percent of Bellevue?s outstanding;common stock for $69,350. Allan classifies the investment as an;available-for-sale security and records any unrealized holding gains or;losses directly in owners? equity. On January 1, 2013, Allan buys an;additional 10 percent of Bellevue for $53,010, providing Allan the;ability to significantly influence Bellevue?s decisions. During the next two years, the following information is available for Bellevue: Income Dividends Common StockFair Value (12/31) 2012 $ 170,000 $ 120,000 $ 477,500 2013 201,200 135,600 524,300 In;each purchase, Allan attributes any excess of cost over book value to;Bellevue?s franchise agreements that had a remaining life of 10 years at;January 1, 2012. Also at January 1, 2012, Bellevue reports a net book;value of $319,000.Assume Allan applies the equity method to its Investment in Bellevue account:a-1.On Allan?s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account? Investment in Bellevue $ a-2.What amount of equity income should Allan report for 2013? Equity income $ a-3.Prepare the January 1, 2013, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method.General Journal Debit Credit To eliminate AFS fair value adjustment account.;(Click to select)Fair Value Adjustment (Available-for-Sale;Securities)Accounts ReceivableUnrealized Holding Gain-Shareholders;EquityInvestment in BellevueAccounts PayableRetained Earnings (January;1, 2013)CashInterest Payable;(Click to select)Investment in BellevueAccounts PayableCashInterest;PayableUnrealized Holding Gain-Shareholders' EquityAccounts;ReceivableRetained Earnings (January 1, 2013)Fair Value Adjustment;(Available-for-Sale Securities) To record retrospective adjustment.;(Click to select)CashAccounts PayableInterest PayableFair Value;Adjustment (Available-for-Sale Securities)Retained Earnings (January 1;2013)Investment in BellevueAccounts ReceivableUnrealized Holding;Gain-Shareholders' Equity;(Click to select)Fair Value Adjustment (Available-for-Sale;Securities)Interest PayableAccounts ReceivableInvestment in;BellevueCashAccounts PayableRetained Earnings (January 1;2013)Unrealized Holding Gain-Shareholders' Equity Assume Allan elects the fair-value reporting option for its investment in Bellevue:b-1.On Allan?s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account? Investment in Bellevue $ b-2.What amount of income from its investment in Bellevue should Allan report for 2013? Reported income $ 7);Hobson acquires 40 percent of the outstanding voting stock of Stokes;Company on January 1, 2012, for $341,100 in cash. The book value of;Stokes?s net assets on that date was $655,000, although one of the;company?s buildings, with a $65,200 carrying value, was actually worth;$125,450. This building had a 10-year remaining life. Stokes owned a;royalty agreement with a 20-year remaining life that was undervalued by;$137,500.Stokes;sold inventory with an original cost of $107,100 to Hobson during 2012;at a price of $153,000. Hobson still held $25,050 (transfer price) of;this amount in inventory as of December 31, 2012. These goods are to be;sold to outside parties during 2013.Stokes;reported a loss of $66,000 for 2012, $44,000 from continuing operations;and $22,000 from an extraordinary loss. The company still manages to;pay a $6,000 cash dividend during the year.During;2013, Stokes reported a $47,400 net income and distributed a cash;dividend of $8,000. It made additional inventory sales of $76,000 to;Hobson during the period. The original cost of the merchandise was;$47,500. All but 30 percent of this inventory had been resold to outside;parties by the end of the 2013 fiscal year.Prepare;all journal entries for Hobson for 2012 and 2013 in connection with;this investment. Assume that the equity method is applied. (Do not round;intermediate calculations.)


Paper#40196 | Written in 18-Jul-2015

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