Problem 1-26 (Algo) (LO 1-2, 1-4, 1-5) On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,650. On December 31, 2023, Akron, Incorporated, acquires an additional 25 percent of Zip Company's outstanding common stock for $96,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $ 313,000 384,000 477,000 Year 2022 2023 2024 Income $ 76,000 97,000 Dividends Declared $ 6,100 16,000 At December 31, 2023, Zip reports a net book value of $299,000. 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? 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 2024? 2. On Akron's December 31, 2024, balance sheet, what amount is reported for the Investment in Zip account?
Problem 1-26 (Algo) (LO 1-2, 1-4, 1-5) On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange for $15,650. On December 31, 2023, Akron, Incorporated, acquires an additional 25 percent of Zip Company's outstanding common stock for $96,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value (12/31) $ 313,000 384,000 477,000 Year 2022 2023 2024 Income $ 76,000 97,000 Dividends Declared $ 6,100 16,000 At December 31, 2023, Zip reports a net book value of $299,000. 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? 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 2024? 2. On Akron's December 31, 2024, 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:Problem 1-26 (Algo) (LO 1-2, 1-4, 1-5)
On December 31, 2022, Akron, Incorporated, purchased 5 percent of Zip Company's common shares on the open market in exchange
for $15,650. On December 31, 2023, Akron, Incorporated, acquires an additional 25 percent of Zip Company's outstanding common
stock for $96,000.
During the next two years, the following information is available for Zip Company:
Year
2022
2023
2024
Income
$ 76,000
97,000
Dividends
Declared
$ 6,100
16,000
a1. Equity income
a2. Investment in Zip account
b1. Reported income
b2. Investment in Zip account
Common Stock Fair
Value (12/31)
$313,000
384,000
477,000
At December 31, 2023, Zip reports a net book value of $299,000. Akron attributed any excess of its 30 percent share of Zip's fair ove
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?
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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