On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,750. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $97,250. During the next two years, the following information is available for Zip Company: Common Stock Fair Value Dividends Declared Income 2019 2020 $71,000 $6,700 2021 86,000 14,300 (12/31) $315,000 389,000 486,000 At December 31, 2020, Zip reports a net book value of $282,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account? b. Assume Akron uses fair-value accounting for its Investment in Zip account: 1. What amount of income from its investment in Zip should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,750. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $97,250. During the next two years, the following information is available for Zip Company: Common Stock Fair Value Dividends Declared Income 2019 2020 $71,000 $6,700 2021 86,000 14,300 (12/31) $315,000 389,000 486,000 At December 31, 2020, Zip reports a net book value of $282,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account? b. Assume Akron uses fair-value accounting for its Investment in Zip account: 1. What amount of income from its investment in Zip should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Vishu
![On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for
$15,750. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for
$97,250.
During the next two years, the following information is available for Zip Company:
Common Stock
Fair Value
Income
2019
2020 $71,000
2021
Dividends
Declared
$6,700
86,000 14,300
(12/31)
$315,000
389,000
486,000
At December 31, 2020, Zip reports a net book value of $282,000. Akron attributed any excess of its 30 percent share of Zip's fair over
book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31,
2020.
a. Assume Akron applies the equity method to its Investment in Zip account:
1. What amount of equity income should Akron report for 2021?
2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
b. Assume Akron uses fair-value accounting for its Investment in Zip account:
1. What amount of income from its investment in Zip should Akron report for 2021?
2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
a1. Equity income
a2. Investment in Zip account
b1. Reported income
b2. Investment in Zip account](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7d2fee38-4a94-47a1-a4e6-b78534f958bf%2F02fb47c2-b309-4ab5-8686-a854883194e6%2Fmp9f54g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for
$15,750. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for
$97,250.
During the next two years, the following information is available for Zip Company:
Common Stock
Fair Value
Income
2019
2020 $71,000
2021
Dividends
Declared
$6,700
86,000 14,300
(12/31)
$315,000
389,000
486,000
At December 31, 2020, Zip reports a net book value of $282,000. Akron attributed any excess of its 30 percent share of Zip's fair over
book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31,
2020.
a. Assume Akron applies the equity method to its Investment in Zip account:
1. What amount of equity income should Akron report for 2021?
2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
b. Assume Akron uses fair-value accounting for its Investment in Zip account:
1. What amount of income from its investment in Zip should Akron report for 2021?
2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
a1. Equity income
a2. Investment in Zip account
b1. Reported income
b2. Investment in Zip account
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