On January 3 2018 Matteson Corporation acquired 40 percent o

On January 3, 2018, Matteson Corporation acquired 40 percent of the outstanding common stock of O’Toole Company for $1,379,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $863,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O’Toole reported net income of $353,000 and declared cash dividends of $35,000.The fair value of the O\'Toole Company stock on December 31, 2018 was $1,410,000.

Requirements:

1.

How much of Matteson\'s consideration for O\'Toole is attributable to revaluation increments and decrements and goodwill or gain on bargain purchase?  (Enter negative numbers preceded by a minus sign.)

2. Prepare all of the journal entries for Austin regarding their investment in McKenzie Corporation stock using the equity method.

3. At December 31, 2015, what should Matteson report as its investment in O’Toole under the equity method?

4. Prepare all of the journal entries for Austin regarding their investment in McKenzie Corporation stock using the fair-value option.

5. At December 31, 2015, what should Matteson report as its investment in O’Toole under the fair value option?

6. How much of Matteson\'s consideration for O\'Toole is attributable to revaluation increments and decrements and goodwill or gain on bargain purchase?

Solution

1.

Out of the Matteson\'s consideration $516,000 is for revalueation increment in respect of copyright. There is no payment for Goodwill.

2.

3. the date should be December31, 2018 and not December31, 2015 as mentioned in the question.

The balance of Investment in O\'Toole Co. account is $1,454,600.

4.

As per the information given The value of the stock of O\'Toole Co. as at Dec.31, 2018 $1.410,000

40% interest of this =$564,000

That means there is a reduciton of the value of investment by $815,000.($1,379,000 - $564,000)

5. The value of investment under fair value option is $564,000.