Questions on Company Accounting

1. award: 0 out of
0.00 points

On January 1, Puckett Company paid $2.64 million for 88,000 shares of Harrison’s voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $2 per share during the year and reported net income of $613,000. What is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31?

$2,709,200.

Acquisition price
$
2,640,000 Equity income ($613,000 × 40%) 245,200 Dividends (88,000 shares × $2) (176,000
)

Investment in Harrison Corporation as of December 31
$
2,709,200

In January 2012, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $734,000. This investment gave Wilkinson the ability to exercise significant influence over Bremm. Bremm’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 2012, Bremm reported net income of $257,000. In 2013, Bremm reported net income of $315,250. Dividends of $72,000 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?

$798,850.

Acquisition price
$
734,000 Income accruals: 2012—$257,000 × 20% 51,400 2013—$315,250 × 20% 63,050 Amortization (see below): 2012 (10,400
)
Amortization: 2013 (10,400
)
Dividends: 2012—$72,000 × 20% (14,400
)
2013—$72,000 × 20% (14,400
)

Investment in Bremm, December 31, 2013
$
798,850

Acquisition price
$
734,000 Bremm’s net assets acquired ($3,150,000 × 20%) (630,000
)

Excess cost to patent