Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 1, Problem 12P
To determine
Concept Introduction:
Equity Method: When a firm has a large amount of control over the company it is investing in, the equity method is utilized to value the investment. As per the equity method, the investment is originally recorded at historical cost.
The equity income to be reported by A. Ltd.
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Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, for $530,000. The equity method of accounting is to be used. Steinbart’s net assets on that date were $1.2 million. Any excess of cost over book value is attributable to a trade name with a 20-year remaining life. Steinbart immediately begins supplying inventory to Alex as follows:
Year
Cost to Steinbart
Transfer Price
Amount Held by Alex at Year-End (at transfer price)
2020
70,000
100,00
25,000
2021
96,000
150,000
45,000
Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $80,000 in 2020 and $110,000 in 2021 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2021? How do you get the answer and how do you get trade name price?
a. $34,050
b. $38,020
c. $46,230
d. $51,450
Alex, Incorporated, buys 30 percent of Steinbart Company on January 1, 2023, for $599,000. The equity method of accounting is to be used. Steinbart’s net assets on that date were $1.65 million. Any excess of cost over book value is attributable to a trade name with a 20-year remaining life. Steinbart immediately begins supplying inventory to Alex as follows:
Year
Cost to Steinbart
Transfer Price
Amount Held by Alex at Year-End (at transfer price)
2023
$ 171,760
$ 226,000
$ 56,500
2024
118,320
174,000
53,000
The inventory held at the end of one year by Alex is sold at the beginning of the next.
Steinbart reports net income of $104,500 in 2023 and $139,300 in 2024 and declares $20,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2024?
Dineshbhai
Chapter 1 Solutions
Advanced Accounting
Ch. 1 - What advantages does a company achieve when it...Ch. 1 - A company acquires a rather large investment in...Ch. 1 - What accounting treatments are appropriate for...Ch. 1 - Prob. 4QCh. 1 - Why does the equity method record dividends from...Ch. 1 - Prob. 6QCh. 1 - Smith. Inc., has maintained an ownership interest...Ch. 1 - Prob. 8QCh. 1 - Because of the acquisition of additional investee...Ch. 1 - Prob. 10Q
Ch. 1 - Prob. 11QCh. 1 - Prob. 12QCh. 1 - In a stock acquisition accounted for by the equity...Ch. 1 - Prob. 14QCh. 1 - What is the difference between downstream and...Ch. 1 - Prob. 16QCh. 1 - Prob. 17QCh. 1 - What is the fair-value option for reporting equity...Ch. 1 - When an investor uses the equity method to account...Ch. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Under fair-value accounting for an equity...Ch. 1 - When an equity method investment account is...Ch. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8PCh. 1 - Evan Company reports net income of $140,000 each...Ch. 1 - Prob. 10PCh. 1 - Prob. 11PCh. 1 - Prob. 12PCh. 1 - Prob. 13PCh. 1 - Prob. 14PCh. 1 - Prob. 15PCh. 1 - Prob. 16PCh. 1 - Prob. 17PCh. 1 - Prob. 18PCh. 1 - Prob. 19PCh. 1 - Prob. 20PCh. 1 - Prob. 21PCh. 1 - Prob. 23PCh. 1 - Matthew, Inc., owns 30 percent of the outstanding...Ch. 1 - Prob. 26PCh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Prob. 30PCh. 1 - Prob. 31P
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