Kaplan AC 450 Unit 1 Problem 1-25
KnowledgeCatsProblem 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:
Income Dividends Common Stock
Fair Value (12/31)
2012 $ 174,000 $ 74,000 $ 612,000
2013 210,400 92,200 666,600
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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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