Question

On January 3, 2018, Matteson Corporation acquired 40 percent of the outstanding common stock of O’Toole Company for $1,379,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $863,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O’Toole reported net income of $353,000 and declared cash dividends of $35,000. At December 31, 2018, what should Matteson report as its investment in O’Toole under the equity method?

Answer 1

total investment (net) 1,454,6‬00

Step-by-step explanation:

40% acqired for 1,379,000

book value (863,000)

excess of value / copyrights 516,000

useful life of the copyrights: 10 years

depreciation per year: 516,000 / 10 = 51,600

net income 353,000 x 40% = 141,200

cash dividends 35,000 x 40% = (14,000)

investment account increase 127,200

beginning balance 863,000

year-end 990,200

copyrights 516,000

amortization on copyrights (51,600)

year-end copyrights 464,400

investment on O'Toole 990,200

copyrights 464,400

total investment (net) 1,454,6‬00