In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common st
ID: 2414072 • Letter: I
Question
In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $846,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $4,428,000 with liabilities of $978,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years In 2017, Martes reported net income of $221,000. In 2018, Martes reported net income of $266,000. Dividends of $94,000 were declared in each of these two years. What is the equity method balance of Domingo's Investment in Martes, Inc., at December 31, 2018? Multiple Choice $1,003,000. $905,800 $987400 $874,600.Explanation / Answer
The Answer is “ $ 874,600”
Equity method balance of Domingo's Investment in Martes, Inc., at December 31, 2018 = $ 874,600
Particulars
Amount ($)
Add : Investment Purchase Price
$846,000
Add : Net Income Accrued – 2017 [ 221,000 x 20% ]
44,200
Add : Net Income Accrued – 2018 [ 266,000 x 20% ]
53,200
Less : Dividend Declared – 2017 [ 94,000 x 20% ]
(18,800)
Less : Dividend Declared – 2018 [ 94,000 x 20% ]
(18,800)
Less : Annual Amortization of Patent - 2017
[ 846,000 – {(44,28,000 – 978,000) x 20%}/ 10 Years
(15,600)
Less : Annual Amortization of Patent - 2018
[ 846,000 – {(44,28,000 – 978,000) x 20%}/ 10 Years
(15,600)
Balance of Domingo's Investment in Martes, Inc., at December 31, 2018
$874,600
Particulars
Amount ($)
Add : Investment Purchase Price
$846,000
Add : Net Income Accrued – 2017 [ 221,000 x 20% ]
44,200
Add : Net Income Accrued – 2018 [ 266,000 x 20% ]
53,200
Less : Dividend Declared – 2017 [ 94,000 x 20% ]
(18,800)
Less : Dividend Declared – 2018 [ 94,000 x 20% ]
(18,800)
Less : Annual Amortization of Patent - 2017
[ 846,000 – {(44,28,000 – 978,000) x 20%}/ 10 Years
(15,600)
Less : Annual Amortization of Patent - 2018
[ 846,000 – {(44,28,000 – 978,000) x 20%}/ 10 Years
(15,600)
Balance of Domingo's Investment in Martes, Inc., at December 31, 2018
$874,600
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