On January 3, 2015, Matteson Corporation acquired 40 percent of the outstanding

Question

On January 3, 2015, Matteson Corporation acquired 40 percent of the outstanding common stock of O’Toole Company for $1,443,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $852,000. 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, 2015, O’Toole reported net income of $262,000 and declared cash dividends of $50,000. At December 31, 2015, what should Matteson report as its investment in O’Toole under the equity method?

Investment amount = ?

Explanation / Answer

Details Amt $ Book Value of O'Toole shares acquired            852,000 Purchase cost           1,443,000 Copyright Value for Matteson portion              591,000 Useful life for Copyright in years                       10 Yearly amortization for copyright               59,100 Amrtization for 362 days                 58,614 O'Toole Net Income              262,000 40% share of Matteson            104,800 O'Toole cash dividend declared               50,000 40% share of Matteson               20,000 Dec 31,2015 Net Investment in O'Toole in the book of Matteson Invetsment cost on Jan 3.2015.         1,443,000 Add Share of Profit of O'Toole            104,800 Less : Amortization of fair value increase in Copyright            (58,614) Less: share of Cash Dividend in OToole            (20,000) Invetsment value on Dec31.2015 $    1,469,186

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