Starge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influencethe investee's operations and decision making. On January 1, Year 2, the balance in the Investment in Ticker Co.account was $402,000. Amortization associated with this acquisition is $8,000 per year. During Year 2, Ticker earned anincome of $108,000 and paid cash dividends of $36,000. Previously in Year 1, Ticker had sold inventory costing $28,800 to Starge for $48,000. All but 25% of this merchandise was consumed by Starge during Year 1. The remainderwas used during the first few weeks of Year 2. Additional sales were made to Starge in Year 2; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until Year 3.a. What amount of equity income would Starge have recognized in Year 2 from its ownership interest in Ticker?b. What was the balance in the Investment in Ticker Co. account at the end of Year 2?Equity income: $19,792; Investment in Ticker Co.: $401,136Equity income: $22, 672; Investment in Ticker Co.: $413,872Equity income: $24,400; Investment in Ticker Co.: $418,840Eaquity income: $21,748; Investment in Ticker Co.: $410,148

Formula: Equity Income=(Ticker's Income x Ownership Percentage)−Amortization−Deferred Profit…

Answered: Starge Inc. owns 30% of the outstanding…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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On January 1, Barnyard Corporation acquired common stock of Fresh Hay Corporation. At the time of acquisition, the book value and the fair value of Fresh Hay Corporation's net assets were $1 billion. During the year, Fresh Hay Corporation reported net income of $480 million and declared dividends of $160 million. The fair value of the shares increased by 10 percent during the year. How much income would Barnyard Corporation report for the year related to its investment under the assumption that it:A. Paid $150 million for 15 percent of the common stock and uses the fair value method to account for its investment in Fresh Hay Corporation. (Pay attention to the "fair value method" mention, some who attempted to answer this question got it wrong because they missed that). B. Paid $300 million for 30 percent of the common stock and uses the equity method to account for its investment in Fresh Hay Corporation. Please show all your steps so we can follow what we might be doing wrong.
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As a long-term investment, Fair Company purchased 20% of Midlin Company’s 120,000 shares for $144,000 at the beginning of the reporting year of both companies. During the year, Midlin earned net income of $117,000 and distributed cash dividends of $0.30 per share. At year-end, the fair value of the shares is $150,000. Required: 1. Assume no significant influence was acquired. Record the transactions from the purchase through the end of the year, including any adjustment for the investment’s fair value, if appropriate.
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Matthew Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee's operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $335,000. Amortization associated with this acquisition is $9,000 per year. In 2018, Lindman earns an income of $90,000 and declares cash dividends of $30,000. Previously, in 2017, Lindman had sold inventory costing $24,000 to Matthew for $40,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $28,000 to Matthew for $50,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019. What amount of equity method income would Matthew recognize in 2018 from its ownership interest in Lindman? What is the equity method balance in the Investment in Lindman account at the end of 2018? I need help with the second part (#2) since…
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