On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $97,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value 2019 2020 2021 Income $70,000 82,000 Dividends Declared $7,100 14,200 (12/31) $324,000 388,000 481,000 At December 31, 2020, Zip reports a net book value of $288,000. 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, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount equity income should Akron report for 2021? 2. On Akron's December 31, 2021, 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 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $97,000. During the next two years, the following information is available for Zip Company: Common Stock Fair Value 2019 2020 2021 Income $70,000 82,000 Dividends Declared $7,100 14,200 (12/31) $324,000 388,000 481,000 At December 31, 2020, Zip reports a net book value of $288,000. 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, 2020. a. Assume Akron applies the equity method to its Investment in Zip account: 1. What amount equity income should Akron report for 2021? 2. On Akron's December 31, 2021, 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 2021? 2. On Akron's December 31, 2021, 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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2019
2020
2021
Dividends
Income Declared
$70,000 $7,100
82,000 14,200
F2
#
3
On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for
$97,000.
$16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for
During the next two years, the following information is available for Zip Company:
80
Baruch. Newman...
F3
4
Common Stock
Fair Value
$
(12/31)
$324,000
388,000
481,000
4
At December 31, 2020, Zip reports a net book value of $288,000. Akron attributed any excess of its 30 percent share of Zip's fair over
2020.
book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31,
a. Assume Akron applies the equity method to its Investment in Zip account:
1. What amount of equity income should Akron report for 2021?
2. On Akron's December 31, 2021, 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 2021?
2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?
Question 1 HWK 1 (Ch. 1) - CX
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