12. On January 1, 2008, Alison, Inc., paid $60,000 for a 40 percent interest in
ID: 2351021 • Letter: 1
Question
12. On January 1, 2008, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation. 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 2008, Holister earned income of $30,000 and paid dividends of $10,000. In 2009, it had income of $50,000 and dividends of $15,000. Assuming that Alison has the ability to significantly influence Holister's operations and uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2009?Explanation / Answer
: (a) Acquisition price = $ 60,000
Book valueassets minus liabilities ($125,000 x40%)= 50,000
Excess payment $ 10,000
Value of patent in excess of book value ($15,000 x 40%)= 6,000
Goodwill =$ 4,000
Amortization: Patent ($6,000 6) $ 1,000
Goodwill 0 Annual amortization $ 1,000
Acquisition price $ 60,000
Basic equity accrual 2010 ($30,000 x40%) =12,000
Dividends2010 ($10,000 x 40%)= (4,000)
Amortization2010 (above) (1,000)
Investment in Holister, 12/31/09 =$ 67,000
Basic equity accrual2009 ($50,000x 40%) =20,000
Dividends2009 =(6,000)
Amortization2009(above) =(1,000)
Investment in Holister, 12/31/09= $ 80,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.