18th Edition

ISBN: 9781260714067

Author: SPICELAND

Publisher: MCG

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Textbook Question

Chapter 12, Problem 12.14P

Equity method

• LO12-6, LO12-7

On January 2, 2018, Miller Properties paid $19 million for 1 million shares of Marlon Company’s 6 million outstanding common shares. Miller’s CEO became a member of Marlon’s board of directors during the first quarter of 2018.

The carrying amount of Marlon’s net assets was $66 million. Miller estimated the fair value of those net assets to be the same except for a patent valued at $24 million above cost. The remaining amortization period for the patent is 10 years.

Marlon reported earnings of $12 million and paid dividends of $6 million during 2018. On December 31, 2018, Marlon’s common stock was trading on the NYSE at $18.50 per share.

Required:

1. When considering whether to account for its investment in Marlon under the equity method, what criteria should Miller’s management apply?

2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2018:

a. Income statement

b. Balance sheet

c. Statement of cash flows

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.

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Chapter 12, Problem 12.13P

Chapter 12, Problem 12.15P

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Chapter 12 Solutions

GEN CMB(LL)INTRM ACCTG

Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5Q Ch. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

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Solution Summary: The author explains how to determine the amount to be reported in the balance sheet, which summarizes the assets, liabilities, and Shareholder's equity of a company.

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