1. ) Ace Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings. At the end of 4 years, the Investment in Billings account on Ace’s books is $198,000. What items constitute this balance?
2. On January 2, 20X1, Heinreich Co. paid $500,000 for 24% of the voting common stock of Jones Corp. At the time of the investment, Jones had net assets with a book value and fair value of $1,800,000. During 20X1, Jones incurred a net loss of $60,000 and paid dividends of $100,000. Any excess cost over book value is attributable to goodwill with an indefinite life.
-1) Prepare a schedule to show the amount of goodwill from Heinrich’s investment in Jones.
-2) Prepare a schedule to show the balance in Heinreich’s investment account at December 31, 20X1.
3. Nathan Inc. sold $180,000 in inventory to Miller Co. during 20X0 for $250,000. Miller resold $108,000 of this merchandise in 20X0 with the remainder to be disposed of during 20X1.
Assume Nathan owns 25% of Miller and applies the equity method.
-1) Determine Nathan’s share of the unrealized gain at the end of 20X0.
-2) Prepare the journal entry Nathan should record at the end of 20X0 to defer the unrealized intra-entity inventory profit.
4. Jasper Inc. holds 30% of the outstanding voting shares of Kinson Co. and appropriately applies the equity method of accounting. Amortization associated with this investment equals $11,000 per year. For 20X1, Kinson reported earnings of $100,000 and paid cash dividends of $40,000. During 20X1, Kinson acquired inventory for $62,400, which was then sold to Jasper for $96,000. At the end of 20X1, Jasper still held some of this inventory at its transfer price of $50,000.
-1) Determine the amount of intra-entity profit at the end of 20X1.
-2) Determine the amount of Equity in Investee Income that Jasper should have reported for 20X1.
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