On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the oper market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,750. During the next two years, the following information is available for Zip Company: 2019 2020 2021 Income $69,000 89,000 Dividends Declared $7,100 14,700 Common Stock Fair Value (12/31) $324,000 387,000 477,000 At December 31, 2020, Zip reports a net book value of $289,000. 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? a1. Equity income a2 Investment in Zip account b1 Reported income b2. 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 oper market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,750. During the next two years, the following information is available for Zip Company: 2019 2020 2021 Income $69,000 89,000 Dividends Declared $7,100 14,700 Common Stock Fair Value (12/31) $324,000 387,000 477,000 At December 31, 2020, Zip reports a net book value of $289,000. 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? a1. Equity income a2 Investment in Zip account b1 Reported income b2. 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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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 $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent
of Zip Company's outstanding common stock for $96,750.
During the next two years, the following information is available for Zip Company:
Common Stock
Fair Value
2019
2020
2021
Income
$69,000
89,000
Dividends
Declared
$7,100
14,700
(12/31)
$324,000
387,000
477,000
At December 31, 2020, Zip reports a net book value of $289,000. 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?
a1. Equity income
a2 Investment in Zip account
b1 Reported income
62. 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?
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