Exercise SA1-4 Equity method, change in interest. Hanson Corporation purchases a 10% interest in Novic Company on January 1, 2016, and an additional 15% interest on Janu- ary 1, 2018. These investments cost Hanson Corporation $80,000 and $110,000, respectively. The following stockholders' equities of Novic Company are available: Common stock ($10 par). Retained earnings Total equity December 31, 2015 December 31, 2017 $500,000 $500,000 250,000 300,000 $750,000 $800,000 Any excess of cost over book value on the original investment is attributed to goodwill. Any excess on the second purchase is attributable to equipment with a 4-year life. Novic Company has income of $30,000, $30,000, and $40,000 for 2016, 2017, and 2018, respectively. Novic pays dividends of $0.20 per share in 2017 and 2018, Ignore income tax considerations, and assume equity method adjusting entries are made at the end of the calendar year only. 1. Prepare the cost-to-equity conversion entry on January 1, 2018, when Hanson's investment in Novic Company first exceeds 20%. Any supporting schedules should be in good form. 2. Prepare the December 31, 2018, equity adjustment on Hanson's books. Provide supporting calculations in good form. I
Exercise SA1-4 Equity method, change in interest. Hanson Corporation purchases a 10% interest in Novic Company on January 1, 2016, and an additional 15% interest on Janu- ary 1, 2018. These investments cost Hanson Corporation $80,000 and $110,000, respectively. The following stockholders' equities of Novic Company are available: Common stock ($10 par). Retained earnings Total equity December 31, 2015 December 31, 2017 $500,000 $500,000 250,000 300,000 $750,000 $800,000 Any excess of cost over book value on the original investment is attributed to goodwill. Any excess on the second purchase is attributable to equipment with a 4-year life. Novic Company has income of $30,000, $30,000, and $40,000 for 2016, 2017, and 2018, respectively. Novic pays dividends of $0.20 per share in 2017 and 2018, Ignore income tax considerations, and assume equity method adjusting entries are made at the end of the calendar year only. 1. Prepare the cost-to-equity conversion entry on January 1, 2018, when Hanson's investment in Novic Company first exceeds 20%. Any supporting schedules should be in good form. 2. Prepare the December 31, 2018, equity adjustment on Hanson's books. Provide supporting calculations in good form. I
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter15: Investments And Fair Value Accounting
Section: Chapter Questions
Problem 13E
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![Exercise SA1-4 Equity method, change in interest. Hanson Corporation purchases a
10% interest in Novic Company on January 1, 2016, and an additional 15% interest on Janu-
ary 1, 2018. These investments cost Hanson Corporation $80,000 and $110,000, respectively.
The following stockholders' equities of Novic Company are available:
Common stock ($10 par).
Retained earnings
Total equity
December 31, 2015
December 31, 2017
$500,000
$500,000
250,000
300,000
$750,000
$800,000
Any excess of cost over book value on the original investment is attributed to goodwill. Any
excess on the second purchase is attributable to equipment with a 4-year life.
Novic Company has income of $30,000, $30,000, and $40,000 for 2016, 2017, and 2018,
respectively. Novic pays dividends of $0.20 per share in 2017 and 2018,
Ignore income tax considerations, and assume equity method adjusting entries are made at
the end of the calendar year only.
1. Prepare the cost-to-equity conversion entry on January 1, 2018, when Hanson's investment
in Novic Company first exceeds 20%. Any supporting schedules should be in good form.
2. Prepare the December 31, 2018, equity adjustment on Hanson's books. Provide supporting
calculations in good form.
I](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33ab5b79-9775-4416-a278-145896235be6%2F74bb99ef-bb44-4402-8490-a9c555665ed2%2F18rx5gn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise SA1-4 Equity method, change in interest. Hanson Corporation purchases a
10% interest in Novic Company on January 1, 2016, and an additional 15% interest on Janu-
ary 1, 2018. These investments cost Hanson Corporation $80,000 and $110,000, respectively.
The following stockholders' equities of Novic Company are available:
Common stock ($10 par).
Retained earnings
Total equity
December 31, 2015
December 31, 2017
$500,000
$500,000
250,000
300,000
$750,000
$800,000
Any excess of cost over book value on the original investment is attributed to goodwill. Any
excess on the second purchase is attributable to equipment with a 4-year life.
Novic Company has income of $30,000, $30,000, and $40,000 for 2016, 2017, and 2018,
respectively. Novic pays dividends of $0.20 per share in 2017 and 2018,
Ignore income tax considerations, and assume equity method adjusting entries are made at
the end of the calendar year only.
1. Prepare the cost-to-equity conversion entry on January 1, 2018, when Hanson's investment
in Novic Company first exceeds 20%. Any supporting schedules should be in good form.
2. Prepare the December 31, 2018, equity adjustment on Hanson's books. Provide supporting
calculations in good form.
I
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