Q4. Problem 16-1 Equity method accounting (LO 16-4)On January 1, 2017, Figland Company purchased for cash 40% of Irene Company's 300,000 sharesof voting common stock for $1,800,000. At the time, 40% of the book value of the underlyingequity in Irene's net assets was $1,400,000; $50,000 of the excess was attributed to the excess offair value over book value of inventory, which Irene accounts for using the first-in, first-out (FIFO)inventory method; and $150,000 was attributed to undervaluation of depreciable assets with anaverage remaining life of 10 years. The remainder was attributed to implicit goodwill.As a result of this transaction, Figland can exercise significant influence over Irene's operating andfinancial policies. Irene's net income for the year ended December 31, 2017, was $600,000. During2017, Irene paid $325,000 in dividends to its stockholders.Required:1. How much income would Figland report on its 2017 income statement from its investment inIrene?2. What would be the balance in the Investment in Irene Company account on December 31,2017?

Income Statement: It is used to report a company financial statement during the accounting period…

Answered: 1. How much income would Figland report…

1. How much income would Figland report on its 2017 income statement from its investment Irene? 2. What would be the balance in the Investment in Irene Company account on December 31,

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Q4. Problem 16-1 Equity method accounting (LO 16-4)
On January 1, 2017, Figland Company purchased for cash 40% of Irene Company's 300,000 shares
of voting common stock for $1,800,000. At the time, 40% of the book value of the underlying
equity in Irene's net assets was $1,400,000; $50,000 of the excess was attributed to the excess of
fair value over book value of inventory, which Irene accounts for using the first-in, first-out (FIFO)
inventory method; and $150,000 was attributed to undervaluation of depreciable assets with an
average remaining life of 10 years. The remainder was attributed to implicit goodwill.
As a result of this transaction, Figland can exercise significant influence over Irene's operating and
financial policies. Irene's net income for the year ended December 31, 2017, was $600,000. During
2017, Irene paid $325,000 in dividends to its stockholders.
Required:
1. How much income would Figland report on its 2017 income statement from its investment in
Irene?
2. What would be the balance in the Investment in Irene Company account on December 31,
2017?

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