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Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik
Edition 5ISBN: 978-1260575910Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik
Edition 5ISBN: 978-1260575910 Exercise 2
In January 2012, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant influence over Bremm. Bremm's assets on that date were recorded at $3,900,000 with liabilities of $900,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years.
In 2012, Bremm reported net income of $170,000. In 2013, Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two years. What is the equity method balance of Wilkinson's Investment in Bremm, Inc., at December 31, 2013
A) $728,000.
B) $748,000.
C) $756,000.
D) $776,000.
In 2012, Bremm reported net income of $170,000. In 2013, Bremm reported net income of $210,000. Dividends of $70,000 were paid in each of these two years. What is the equity method balance of Wilkinson's Investment in Bremm, Inc., at December 31, 2013
A) $728,000.
B) $748,000.
C) $756,000.
D) $776,000.
Explanation
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Verified
The Income statement is a report which states the revenues and expenditures for a given period and their difference gives us the net profit or net loss for that given period. The statement of stockholders' equity reports the changes in the stockholders' equity of the company for a given period'. The balance sheet reports the assets, liabilities, and stockholder's equity of a company for a given period. A Journal is a record of when a transaction has taken place and what are the accounts that were affected due to this transaction.
Investments of a company are recorded in various methods. One such method is equity method of investment accounting, using which the investees have a significant influence over the operating and financing activities, the corporations use the equity method of accounting these investments. In equity method, uses accrual basis of income recognition earned by the investee.
Given that the W Inc., has acquired 20% shares of B Inc, for $700,000. Therefore, this transaction increases that investment in B Inc., account by $700,000.
Since the B Inc., reported net incomes of $170,000 and $210,000 in 2012 and 2013, respectively. The W Inc. has 20% share in the net income, and it has to be added to the investment in B Inc., account. Therefore,
Since the B Inc., paid dividend of $70,000 each in 2012 and 2013, in which W Inc will be paid from the net income. This has to be deducted from the investment account. Therefore,
Therefore, the equity method balance of W Inc's investment in B Inc as on December 31, 2013 is $748,000, which is option (b).
Investments of a company are recorded in various methods. One such method is equity method of investment accounting, using which the investees have a significant influence over the operating and financing activities, the corporations use the equity method of accounting these investments. In equity method, uses accrual basis of income recognition earned by the investee.
Given that the W Inc., has acquired 20% shares of B Inc, for $700,000. Therefore, this transaction increases that investment in B Inc., account by $700,000.
Since the B Inc., reported net incomes of $170,000 and $210,000 in 2012 and 2013, respectively. The W Inc. has 20% share in the net income, and it has to be added to the investment in B Inc., account. Therefore,
Since the B Inc., paid dividend of $70,000 each in 2012 and 2013, in which W Inc will be paid from the net income. This has to be deducted from the investment account. Therefore, Therefore, the equity method balance of W Inc's investment in B Inc as on December 31, 2013 is $748,000, which is option (b).
Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik
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