Kaplan AC 450 Advanced Accounting Unit 1 Problem 1-25

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Problem 1-25 [LO1, LO3, LO7]

On January 1, 2012, Allan acquires 15 percent of Bellevue’s outstanding common stock for $88,450. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners’ equity. On January 1, 2013, Allan buys an additional 10 percent of Bellevue for $59,990, providing Allan the ability to significantly influence Bellevue’s decisions.

     During the next two years, the following information is available for Bellevue:

 

 IncomeDividendsCommon Stock

Fair Value (12/31)

  2012$174,000$74,000$612,000 

  2013210,40092,200666,600 

________________________________________

 

In each purchase, Allan attributes any excess of cost over book value to Bellevue’s franchise agreements that had a remaining life of 10 years at January 1, 2012. Also at January 1, 2012, Bellevue reports a net book value of $373,000.

 

Assume Allan applies the equity method to its Investment in Bellevue account:

 

a-1.On Allan’s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account?

 

  Investment in Bellevue $    

 

 

a-2.What amount of equity income should Allan report for 2013?

 

  Equity income$    

 

 

a-3.Prepare the January 1, 2013, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method.

 

Assume Allan elects the fair-value reporting option for its investment in Bellevue:

 

b-1.On Allan’s December 31, 2013, balance sheet, what amount is reported for the Investment in Bellevue account?

 

  Investment in Bellevue$    

b-2.What amount of income from its investment in Bellevue should Allan report for 2013?

 

  Reported income$    

 

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    Kaplan AC 450 Advanced Accounting Unit 1 Problem 1-25 Solution
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