Chapter SA1, Problem 4.1E

Exercise SA1-4 Equity method, change in interest. Hanson Corporation purchases a 10% interest in Novic Company on January 1, 2016, and an additional 15% interest on January 1, 2018. These investments cost Hanson Corporation $80,000 and $110.000, respectively. The following stockholders' equities of Novic Company are available:

Any excess of cost over book value on the original investment is attributed to goodwill. Any excess on the second purchase is attributable to equipment with a 4-ycar life.
Novic Company has income of $30,000, $30.000, and $40,000 for 2016, 2017, and 2018, respectively. Novic pays dividends of $0.20 per share in 2017 and 2018.
Ignore income tax considerations, and assume equity method adjusting entries are made at the end of the calendar year only.

Prepare the cost-to-equity conversion entry on January 1. 2018, when Hanson’s investment in Novic Company first exceeds 20%. Any supporting schedules should be in good form.