On January 1, 2017, Alison, Inc., paid $800,000 for a 40 percent interest in Hollister Corporation’s common stock. This investee had assets with a book value of $300,000 and liabilities of $175,000. A patent held by Hollister having a $5,000 book value was worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Hollister earned income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Allison’s investment in Hollister had risen from $68,000 to $75,000. Assuming Alison uses the equity method, what balance should appear in the Investment in Hollister account as of December 31, 2018?Assuming Alison uses fair-value accounting, what income from the investment in Hollister should be reported for 2018?(Acquisition price is $100,000)

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Answered: On January 1, 2017, Alison, Inc., paid…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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On January 1, 2017, Alison, Inc., paid $800,000 for a 40 percent interest in Hollister Corporation’s common stock. This investee had assets with a book value of $300,000 and liabilities of $175,000. A patent held by Hollister having a $5,000 book value was worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Hollister earned income of $30,000 and declared and paid dividends of $10,000. In 2018, it had income of $50,000 and dividends of $15,000. During 2018, the fair value of Allison’s investment in Hollister had risen from $68,000 to $75,000.
Assuming Alison uses the equity method, what balance should appear in the Investment in Hollister account as of December 31, 2018?
Assuming Alison uses fair-value accounting, what income from the investment in Hollister should be reported for 2018?

(Acquisition price is $100,000)

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