On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,000. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $95,000. During the next two years, the following information is available for Zip Company. Common Stock Dividends Fair Value Income Declared (12/31) 2019 $320,000 2020 2021 $75,000 $7,000 380,000 88,000 15,000 480,000 At December 31, 2020, Zip reports a net book value of $290,000. 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 h2. 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 $16,000. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $95,000. During the next two years, the following information is available for Zip Company. Common Stock Dividends Fair Value Income Declared (12/31) 2019 $320,000 2020 2021 $75,000 $7,000 380,000 88,000 15,000 480,000 At December 31, 2020, Zip reports a net book value of $290,000. 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 h2. Investment in Zip account
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open maket in eiciarche for $16,000. On December 31,2020 , Akron, Inc., acquires an additional 25 percent of Zip Companys outstanding commen stociter $95,000. During the next two years, the following information is available for Zip Company. \table[[,Income,\table[[Dividends],[Declared]],\table[[Common Stock],[Fair Value],[(1231)
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
$16,000. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for
$95,000.
During the next two years, the following information is available for Zip Company.
Common Stock
Dividends
Fair Value
Income
Declared
(12/31)
2019
$320,000
2020
2021
$75,000
$7,000
380,000
88,000
15,000
480,000
At December 31, 2020, Zip reports a net book value of $290,000. 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
h2. Investment in Zip account
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