On January 1, 2014, Allan acquires 15 percent of Bellevue's outstanding common stock for $85,800. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners' equity. On January 1, 2015, Allan buys an additional 10 percent of Bellevue for $60,930, providing Allan the ability to significantly influence Bellevue's decisions.
During the next two years, the following information is available for Bellevue:
|
|
Income
|
Dividends
|
Common Stock
Fair Value (12/31)
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|
2014
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$ 135,000
|
$85,000
|
$595,000
|
|
2015
|
163,800
|
99,400
|
638,200
|
In each purchase, Allan attributes any excess of cost over book value to Bellevue's franchise agreements that had a remaining life of 10 years at January 1, 2014. Also at January 1, 2014, Bellevue reports a net book value of $292,000.
a. Assume Allan applies the equity method to its Investment in Bellevue account:
1. On Allan's December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account?
2. What amount of equity income should Allan report for 2015?
3. Prepare the January 1, 2015, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
b. Assume Allan uses fair-value accounting for its investment in Bellevue:
1. On Allan's December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account?
2. What amount of income from its investment in Bellevue should Allan report for 2015?
BuyCo holds 25 percent of the outstanding shares of Marqueen and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with this investment amounts to $10,000 per year. For 2014, Marqueen reported earnings of $100,000 and declares cash dividends of $30,000. During that year, Marqueen acquired inventory for $50,000, which it then sold to BuyCo for $80,000. At the end of 2014, BuyCo continued to hold merchandise with a transfer price of $32,000.
a. What Equity in Investee Income should BuyCo report for 2014? (Do not round intermediate calculations.)
b. How will the intra-entity transfer affect BuyCo's reporting in 2015 (Do not round intermediate calculations.)
c. If BuyCo had sold the inventory to Marqueen, would the answers to (a) and (b) have changed?