Check my work 8 Problem 116 LO 13 14 17 On January 1 2017 Al

Check my work 8 Problem 1-16 (LO 1-3, 1-4, 1-7) 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 goodwill. During 2017, Holister eamed income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Alison\'s investment in Holister had risen from $68,000 to $75,000 oints ebook a. Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, References 2018? b. Assuming Altson uses fair-value accounting. what income from the investment in Holister should be reported for 2018 nvestment in Holister Investment income

Solution

Solution:

Investment in Holister

$80,000

Investment income

$13,000

Explanation:

PART-1

Acquisition price

$60,000

Book value ($125,000 * 40%)

$50,000

Excess payment

$10,000

Value of patent in excess of BV ($15,000 * 40%)

$6,000

Goodwill

$4,000

Amortization:

Patent ($6,000 / 6)

$1,000

Goodwill

$0

Annual amortization

$1,000

Acquisition price

$60,000

Basic equity accrual 2017 ($30,000 * 40%)

$12,000

Dividends Year 2017 ($10,000 * 40%)

-$4,000

Amortization - Year 2017

-$1,000

Investment in Holister 31-12-2017

$67,000

Basic equity accrual Year 2018 ($50,000 * 40%)

$20,000

Dividends Year 2018 ($15,000 * 40%)

-$6,000

Amortization Year 2018

-$1,000

Investment in Holister, 31-12-2018

$80,000

PART-2

Dividend income ($15,000 * 40%)

$6,000

Increase in fair value ($75,000-$68,000)

$7,000

Investment income under fair value accounting - year 2018

$13,000

Investment in Holister	$80,000
Investment income	$13,000