On January 2, 2016, Miller Properties paid $25 million for 1 million shares of M

Question

On January 2, 2016, Miller Properties paid $25 million for 1 million shares of Marlon Company's 6 million outstanding common shares. Miller's CEO became a member of Marlon's board of directors during the first quarter of 2016. The carrying amount of Marlon's net assets was $102 million. Miller estimated the fair value of those net assets to be the same except for a patent valued at $36 million above cost. The remaining amortization period for the patent is 10 years. Marlon reported earnings of $45 million and paid dividends of $6 million during 2016. On December 31, 2016, Marlon's common stock was trading on the NYSE at $24.50 per share. Required: 2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2016 (Enter your answers in millions rounded to 1 decimal places, :

Explanation / Answer

A) Income Statement

Total earnings of Marlon Company after amortisation expenses

= 45 $ -3.6$(Patents of 36$ amorised over a period of 10 years)

=41.4 $

share of miller comapny =41.4*1/6 (miller co obtained 1/6 th shares of marlon co)

   =6.9 $.

B. Balance Sheet

a)Value of investments 25

add: share in earnings (6.9)

----------

   31.9

Less : dividend income ( 1 )

   -----------

Value of investments in B/S 30.9

   ---------------

C) Investing cash flow

amount paid to purchase investment =25

less : Dividend received (1)

total investing cash outflow =24

  

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