Homework Chapter 1

On January 3, 2018, 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 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 $260,000 and declared cash dividends of $50,000. At December 31, 2018, what should Matteson report as its investment in O'Toole under the equity method?

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $190,000 and appropriately accounted for the investment using the fair-value method.  On January 1, 2018, Milani purchased an additional 30 percent of Seida for $600,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,000,000 in total. Seida's January 1, 2018 book value equaled $1,850,000, although land was undervalued by $120,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an 8-year remaining life. During 2018, Seida reported income of $300,000 and declared and paid dividends of $110,000. Prepare the 2018 journal entries for Milani related to its investment in Seida. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Harper, Inc., acquires 40 percent of the outstanding voting stock of Kinman Company on January 1, 2017, for $210,000 in cash. The book value of Kinman's net assets on that date was $400,000, although one of the company's buildings, with a $60,000 carrying amount, was actually worth $100,000. This building had a 10-year remaining life. Kinman owned a royalty agreement with a 20-year remaining life that was undervalued by $85,000.

 

Kinman sold inventory with an original cost of $60,000 to Harper during 2017 at a price of $90,000. Harper still held $15,000 (transfer price) of this amount in inventory as of December 31, 2017. These goods are to be sold to outside parties during 2018.

 

Kinman reported a $40,000 net loss and a $20,000 other comprehensive loss for 2017. The company still manages to declare and pay a $10,000 cash dividend during the year.

 

During 2018, Kinman reported a $40,000 net income and declared and paid a cash dividend of $12,000. It made additional inventory sales of $80,000 to Harper during the period. The original cost of the merchandise was $50,000. All but 30 percent of this inventory had been resold to outside parties by the end of the 2018 fiscal year.

 

Prepare all journal entries for Harper for 2017 and 2018 in connection with this investment. Assume that the equity method is applied. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

 

Matthew Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee's operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $335,000. Amortization associated with this acquisition is $9,000 per year. In 2018, Lindman earns an income of $90,000 and declares cash dividends of $30,000. Previously, in 2017, Lindman had sold inventory costing $24,000 to Matthew for $40,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $28,000 to Matthew for $50,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019

1. What amount of equity method income would Matthew recognize in 2018 from its ownership interest in Lindman?
2. What is the equity method balance in the Investment in Lindman account at the end of 2018?

 

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file 1586945525-Homework Chapter 1.docx preview (637 words )

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