In January 2012, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000.

Panner, Inc., owns 30 percent of Watkins and applies the equity method. During the current year, Panner buysinventory costing $54,000 and then sells it to Watkins for $90,000. At the end of the year, Watkins still holds only$20,000 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investmentusing the equity method?$8,000.$2,400.$10,800.$4,800.

In January 2012, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of

Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant

influence over Bremm. Bremm’s assets on that date were recorded at $3,900,000 with liabilities

of $900,000. Any excess of cost over book value of the investment was attributed to a patent

having a remaining useful life of 10 years

In 2012, Bremm reported net income of $170,000. In 2013, Bremm reported net income

of $210,000. Dividends of $70,000 were paid in each of these two years. What is the equity

method balance of Wilkinson’s Investment in Bremm, Inc., at December 31, 2013?

a. $728,000.

b. $748,000.

c. $756,000.

d. $776,000

On January 1, 2012, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corpora-

tion’s common stock. This investee had assets with a book value of $200,000 and liabilities of

$75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000.

This patent had a six-year remaining life. Any further excess cost associated with this acquisi-

tion was attributed to goodwill. During 2012, Holister earned income of $30,000 and paid

dividends of $10,000. In 2013, it had income of $50,000 and dividends of $15,000. During

2013, the fair value of Allison’s investment in Holister had risen from $68,000 to $75,000.

a. Assuming Alison uses the equity method, what balance should appear in the Investment in

Holister account as of December 31, 2013?

b. Assuming Alison uses the fair-value option, what income from the investment in Holister

should be reported for 2013?