H 5 Equity Method InvestmentOn January 1, 2022, Ace Beverages purchases 40 percent of the stock of an organic sports drink company, Sporty Inc., at a cost of $1,800,000 when Sporty's book value was $3,600,000. Ace has asignificant influence over Sporty's operating and financial decisions. The excess of investment cost over book value is attributed entirely to goodwill, and there are no intercompany transactionsbetween the two companies. Sporty reports the following income and dividends for 2022 through 2025:2022202320242025Income (Loss) Dividends$180,000 $9,000(72,000)45,0003,600144,000 36,000Requireda. Calculate the basis difference that is attributed to goodwill. $ 0b. Calculate the investment balance, reported on Ace's December 31, 2025, balance sheet. $0

Equity Method Investment - This method is mainly used only when a company invest in shares of…

Answered: H 5 | bartleby

Business

Accounting

H 5

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

H 5

Equity Method Investment
On January 1, 2022, Ace Beverages purchases 40 percent of the stock of an organic sports drink company, Sporty Inc., at a cost of $1,800,000 when Sporty's book value was $3,600,000. Ace has a
significant influence over Sporty's operating and financial decisions. The excess of investment cost over book value is attributed entirely to goodwill, and there are no intercompany transactions
between the two companies. Sporty reports the following income and dividends for 2022 through 2025:
2022
2023
2024
2025
Income (Loss) Dividends
$180,000 $9,000
(72,000)
45,000
3,600
144,000 36,000
Required
a. Calculate the basis difference that is attributed to goodwill. $ 0
b. Calculate the investment balance, reported on Ace's December 31, 2025, balance sheet. $0

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