On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,350. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,500. During the next two years, the following information is available for Zip Company: Income Dividends Declared Common Stock Fair Value (12/31) 2019 $327,000 2020 $82,000 $6,600 386,000 2021 86,000 15,900 475,000 At December 31, 2020, Zip reports a net book value of $292,000. 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. Assume Akron applies the equity method to its Investment in Zip account: What amount of equity income should Akron report for 2021? On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account? Assume Akron uses fair-value accounting for its Investment in Zip account: What amount of income from its investment in Zip should Akron report for 2021? On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,350. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,500.

During the next two years, the following information is available for Zip Company:

	Income	Dividends Declared	Common Stock Fair Value (12/31)
2019			$327,000
2020	$82,000	$6,600	386,000
2021	86,000	15,900	475,000

At December 31, 2020, Zip reports a net book value of $292,000. 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.

Assume Akron applies the equity method to its Investment in Zip account:

What amount of equity income should Akron report for 2021?
On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

Assume Akron uses fair-value accounting for its Investment in Zip account:

What amount of income from its investment in Zip should Akron report for 2021?
On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution