Ocean, Inc. acquired 15% of River Co. on January 1, 2022 for $94,500 and appropriately accounted for the investment using the fair-value method. On January 1, 2023, Ocean purchased an additional 20% of River for $180,000, achieving the ability to exert significant influence over River. On that date, the fair value of River's common stock was $900,000 in total. River's January 1, 2023, book value equaled $680,000, although land was undervalued by $40,000. Any additional excess cost over fair value was attributable to an undervalued patent with a 6-year remaining life. During 2023, River reported net income of $168,000 and paid dividends of $40,000. Based on the above information, use the prospective approach to account for the change to the equity method and determine the following numbers.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Ocean, Inc. acquired 15% of River Co. on January 1, 2022 for $94,500 and
appropriately accounted for the investment using the fair-value method. On January
1, 2023, Ocean purchased an additional 20% of River for $180,000, achieving the
ability to exert significant influence over River. On that date, the fair value of River's
common stock was $900,000 in total. River's January 1, 2023, book value equaled
$680,000, although land was undervalued by $40,000. Any additional excess cost
over fair value was attributable to an undervalued patent with a 6-year remaining life.
During 2023, River reported net income of $168,000 and paid dividends of $40,000.
Based on the above information, use the prospective approach to account for the
change to the equity method and determine the following numbers.
(a) The amount of annual excess amortization for 2023.
Answer:
(b) The amount of equity income that Ocean should report for 2023.
Answer:
(c) Compute the balance of Investment in River account at the end of 2023.
Transcribed Image Text:Ocean, Inc. acquired 15% of River Co. on January 1, 2022 for $94,500 and appropriately accounted for the investment using the fair-value method. On January 1, 2023, Ocean purchased an additional 20% of River for $180,000, achieving the ability to exert significant influence over River. On that date, the fair value of River's common stock was $900,000 in total. River's January 1, 2023, book value equaled $680,000, although land was undervalued by $40,000. Any additional excess cost over fair value was attributable to an undervalued patent with a 6-year remaining life. During 2023, River reported net income of $168,000 and paid dividends of $40,000. Based on the above information, use the prospective approach to account for the change to the equity method and determine the following numbers. (a) The amount of annual excess amortization for 2023. Answer: (b) The amount of equity income that Ocean should report for 2023. Answer: (c) Compute the balance of Investment in River account at the end of 2023.
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