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Barbra Streisand Co.

E22-19 (Change from Fair Value to Equity) On January 1, 2004, Barbra Streisand Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value of John's net assets were $13,000,000.

On July 1, 2005, Streisand paid $3,040,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John's identifiable assets net of liabilities was equal to their carrying amount of $14,200,000. As a result of this transaction, Streisand owns 30% of John
and can exercise significant influence over John's operating and financial policies. Any excess fair value is attributed to goodwill.

John reported the following net income and declared and paid the following dividends.

Net Income Dividend per Share
Year ended 12/31/04 $700,000 None
Six months ended 6/30/05 500,000 None
Six months ended 12/31/05 815,000 $1.55

Instructions
Determine the ending balance that Streisand Co. should report as its investment in John Corp. at the end of 2005.

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Kao-wen Peng

E22-19 (Change from Fair Value to Equity) On January 1, 2004, Barbra Streisand Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value of John's net assets were $13,000,000.

On July 1, 2005, Streisand paid $3,040,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John's identifiable assets net of liabilities was equal ...

Solution Summary

This solution is comprised of a detailed explanation to determine the ending balance that Streisand Co. should report as its investment in John Corp. at the end of 2005.

$2.19