On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,250. On December 31, 2023, Akron, Incorporated, 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: Year 2022 2023 2024 Income $ 82,000 94,000 Dividends Common Stock Fair Declared Value (12/31) $ 7,400 14,800 $325,000 190,000 477,000 At December 31, 2023, Zip reports a net book value of $294,000. 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, 2023. Required: a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2024? 2. On Akron's December 31, 2024, balance sheet, what amount is reported for the Investment in Zip account?

On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,250. On December 31, 2023, Akron, Incorporated, 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: Year 2022 2023 2024 Income $ 82,000 94,000 Dividends Common Stock Fair Declared Value (12/31) $ 7,400 14,800 $325,000 190,000 477,000 At December 31, 2023, Zip reports a net book value of $294,000. 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, 2023. Required: a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount of equity income should Akron report for 2024? 2. On Akron's December 31, 2024, 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

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

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On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange
for $16,250. On December 31, 2023, Akron, Incorporated, 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:
Year
2022
2023
2024
Income
$ 82,000
94,000
Dividends Common Stock Fair
Declared Value (12/31)
$ 325,000
190,000
477,000
$ 7,400
14,800
At December 31, 2023, Zip reports a net book value of $294,000. 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,
2023.
a1. Equity income
a2. Investment in Zip account
b1. Reported income
b2. Investment in Zip account
Required:
a. Assume Akron applies the equity method to its Investment in Zip account:
1. What amount of equity income should Akron report for 2024?
2. On Akron's December 31, 2024, 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 2024?
2. On Akron's December 31, 2024, balance sheet, what amount is reported for the Investment in Zip account?

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Step 3: Calculating the Investment in Zip account on December 31, 2024

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Step 4: Calculating the income reported from investment in Zip :-

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Step 5: Calculating Amount of Investment in Zip Account:-

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