. On January 1, 2021, Evan Co. purchased all of the common stock of Kristopher Corp. by issuing 15,000 shares of $1 par value common stock. Evan’s shares had a $30 per share fair value. On that date, Kristopher reported a net book value of $275,000. However, its equipment (with a five-year remaining life) was undervalued by $60,000 in the company’s accounting records. Any excess of consideration transferred over fair value of assets and liabilities is assigned to an unrecorded patent to be amortized over ten years. During 2021, Kristopher earned net income of $155,000 and paid dividends of $40,000. Kristopher’s net income and dividends for 2022 were $178,000 and $65,000, respectively. Required: Calculate the balance in the investment account on the books of Evan Co. at the end of 2022 under each of the following methods: a. equity method b. partial equity method c. initial value method. .
. On January 1, 2021, Evan Co. purchased all of the common stock of Kristopher Corp. by issuing 15,000 shares of $1 par value common stock. Evan’s shares had a $30 per share fair value. On that date, Kristopher reported a net book value of $275,000. However, its equipment (with a five-year remaining life) was undervalued by $60,000 in the company’s accounting records. Any excess of consideration transferred over fair value of assets and liabilities is assigned to an unrecorded patent to be amortized over ten years. During 2021, Kristopher earned net income of $155,000 and paid dividends of $40,000. Kristopher’s net income and dividends for 2022 were $178,000 and $65,000, respectively. Required: Calculate the balance in the investment account on the books of Evan Co. at the end of 2022 under each of the following methods: a. equity method b. partial equity method c. initial value method. .
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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4. On January 1, 2021, Evan Co. purchased all of the common stock of Kristopher Corp. by issuing 15,000 shares of $1 par value common stock. Evan’s shares had a $30 per share fair value. On that date, Kristopher reported a net book value of $275,000. However, its equipment (with a five-year remaining life) was undervalued by $60,000 in the company’s accounting records. Any excess of consideration transferred over fair value of assets and liabilities is assigned to an unrecorded patent to be amortized over ten years. During 2021, Kristopher earned net income of $155,000 and paid dividends of $40,000. Kristopher’s net income and dividends for 2022 were $178,000 and $65,000, respectively.
Required:
Calculate the balance in the investment account on the books of Evan Co. at the end of 2022 under each of the following methods:
a. equity method
b. partial equity method
c. initial value method.
.
Expert Solution
Step 1: Define equity method of investment
The equity method of investment recordation. In is a method of accounting that businesses employ to account for their investments in other businesses over which they have some but not complete control. The investing business records its investment as an asset on the balance sheet and records its portion of the investee's profits or losses on the income statement as per the equity method.
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