In January 2014, Domingo, Inc., acquired 20 percent of the outstanding common st

Question

In January 2014, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $734,000. This investment gave Domingo the ability to exercise significant influence over Martes. Martes’s assets on that date were recorded at $4,079,000 with liabilities of $929,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2014, Martes reported net income of $257,000. In 2015, Martes reported net income of $315,250. Dividends of $72,000 were declared in each of these two years. What is the equity method balance of Domingo’s Investment in Martes, Inc., at December 31, 2015?

Explanation / Answer

Calculation Amt Acquisition Price $734,000 Income share in 2014 257000*20% 51400 Income Share in 2015 315250*20% 63050 Amortization of Patent in 2014 -10400 Amortization of Patent in 2015 -10400 Dividend Revenue in 2014 72000*20% -14400 Dividend Revenue in 2015 72000*20% -14400 Investment in Martes on Dec 2015 $798,850 Ans working for Patent Acquisition Price 734000 Less: Martes net asset acquired (4079000-929000)*20% 630000 Patent 104000 Amortization per year (10 years) 10400

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