On January 3, 2013, Matteson Corporation acquired 40 percent of the outstanding

Question

On January 3, 2013, 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 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 $260,000 and paid cash dividends of $50,000. At December 31, 2013, what should Matteson as its invetment in O'Toole under the equity method?

Explanation / Answer

INvestment = 1160000 + Net income = 104000 (260000*40%) Less - dividends = 20000 (50000*40%) Net investmen as at 31 December 2013 = 1244000

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