BALANCE SHEET INVESTMENT
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Compute the amount of investment income (loss) reported by Essex from its investment in Tolliver for 2002 and the balance in the investment account on December 31, 2002, assuming the equity method is used in accounting for the investment.
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P2-32 Complex Differential
Essex Company issued common shares with a par value of $50,000 and a market value of $165,000 in exchange for 30 percent ownership of Tolliver Corporation on January1, 2002. Tolliver reported the following balances on that date:
TOLLIVER CORPORATION
Balance Sheet
January 1, 2002
Book Value Fair Value
Assets
Cash 40,000 40,000
Account Receivable 80,000 80,000
Inventory (FIFO basis) 120,000 150,000
Land 50,000 65,000
Buildings and Equipment 500,000 320,000
Less: Accumulated Depreciation (240,000)
Patent _________ 25,000
Total Assets 550,000 680,000
Liabilities and Equities
Accounts Payable 30,000 30,000
Bonds Payable 100,000 100,000
Common Stock 150,000
Additional Paid-In Capital 20,000
Retained Earnings 250,000
Total Liabilities and Equities 550,000
The estimated economic life of the patents held by Tolliver is 10 years. The buildings and equipment are expected to last 12 more years on average. Tolliver paid dividends of $9,000 during 2002 and reported net income of $80,000 for the year.
Required:
Compute the amount of investment income (loss) reported by Essex from its investment in Tolliver for 2002 and the balance in the investment account on December 31, 2002, assuming the equity method is used in accounting for the investment.
P2-35 Additional Ownership Level
Balance sheet and income and dividends data for Amber Corporation, Blair Corporation, and Carmen Corporation at January 1, 2003, were as follows:
Amber Blair Carmen
Account Balances Corporation Corporation Corporation
Cash 70,000 60,000 20,000
Accounts Receivable 120,000 80,000 40,000
Inventory 100,000 90,000 65,000
Fixed Assets (net) 450,000 350,000 240,000
Total Assets 740,000 580,000 365,000
Accounts Payable 105,000 110,000 45,000 Payable Bonds 300,000 200,000 120,000
Common Stock 150,000 75,000 90,000
Retained Earnings 185,000 195,000 110,000
Total Liabilities and Equities 740,000 580,000 365,000
Income from Operations in 2003 220,000 100,000
Net Income for 2003 50,000
Dividends Declared and Paid 60,000 30,000 25,000
On January 1, 2003, Amber Corporation purchased 40 percent of the voting common stock of Blair Corporation by issuing common stock with a par value of $40,000 and fair value of $130,000. Immediately after this transaction, Blair purchased 25 percent of the voting common stock of Carmen Corporation by issuing bonds payable with a par value and market value of $51,500.
On January 1, 2003, the book values of Blair's net assets were equal to their fair values except for equipment that had a fair value $30,000 greater than book value and patents that had a fair value $25,000 greater than book value. At that date the equipment had a remaining economic life of eight years and the patent had a remaining economic life of five years. The book values of Carmen's assets were equal to their fair values except for inventory that had a fair value $6,000 in excess of book value and was accounted for on a FIFO basis.
Required:
a. Compute the net income reported by Amber Corporation for 2003, assuming the equity method is used by Amber and Blair in accounting for their intercorporate investments.
b. Give all journal entries recorded by Amber relating to its investment in Blair during 2003.
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Solution Summary
The solution examines balance sheet investments.
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P2-32 Complex Differential
Essex Company issued common shares with a par value of $50,000 and a market value of $165,000 in exchange for 30 percent ownership of Tolliver Corporation on January1, 2002. Tolliver reported the following balances on that date:
TOLLIVER CORPORATION
Balance Sheet
January 1, 2002
Book Value Fair Value
Assets
Cash 40,000 40,000
Account Receivable 80,000 80,000
Inventory (FIFO basis) 120,000 150,000
Land 50,000 65,000
Buildings and Equipment 500,000 320,000
Less: Accumulated Depreciation (240,000)
Patent _________ 25,000
Total Assets 550,000 680,000
Liabilities and Equities
Accounts Payable 30,000 30,000
Bonds Payable 100,000 100,000
Common Stock 150,000
Additional Paid-In Capital 20,000
Retained Earnings 250,000
Total Liabilities and Equities 550,000
The estimated economic life of the patents held by Tolliver is 10 years. The buildings and equipment are expected to last 12 more years on average. Tolliver paid dividends of $9,000 during 2002 and reported net income of $80,000 for the year.
Required:
Compute the amount of investment income (loss) reported by Essex from its ...
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