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Homework- Chapter 1

13. On January 3, 2015, Matteson Corporation acquired 40 percent of the


outstanding common stock of OToole Company for $1,160,000. This
acquisition gave Matteson the ability to exercise significant influence over
the investee. The book value of the acquired shares was $820,000. 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, 2015, OToole reported net
income of $260,000 and declared cash dividends of $50,000. At December
31, 2015, what should Matteson report as its investment in OToole under the
equity method?
18. Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1,
2014, for $210,000 although McKenzies book value on that date was
$1,700,000. McKenzie held land that was undervalued by $100,000 on its
accounting records. During 2014, McKenzie earned a net income of $240,000
while declaring and paying cash dividends of $90,000. On January 1, 2015,
Austin purchased an additional 30 percent of McKenzie for $600,000.
McKenzies land is still undervalued on that date, but then by $120,000. Any
additional excess cost was attributable to a trademark with a 10-year life for
the first purchase and a 9-year life for the second. The initial 10 percent
investment had been maintained at cost because fair values were not readily
available. The equity method will now be applied. During 2015, McKenzie
reported income of $300,000 and declared and paid dividends of $110,000.
Prepare all of the 2015 journal entries for Austin.
21. On January 1, 2013, Pierce, Inc., purchased 15,000 shares of Marion
Company for $ 435,000, giving Pierce 10 percent ownership of Marion. On
January 1, 2014, Pierce purchased an additional 30,000 shares (20 percent)
for $ 1,000,000. This latest purchase gave Pierce the ability to apply
significant influence over Marion. The original 10 percent investment was
categorized as an available-for- sale security. Any excess of cost over book
value acquired for either investment was attributed solely to goodwill.
Marion reports net income and dividends as follows. These amounts are
assumed to have occurred evenly throughout these years. Dividends are
declared and paid in the same period.
Net Income
2013

$359,000

Cash Dividends
(paid quarterly)
$107,000
1

2014
2015

501,000
644,000

132,500
149,000

On July 1, 2015, Pierce sells 9,000 shares of this investment for $ 40 per
share, thus reducing its interest from 30 to 24 percent. However, the
company retains the ability to significantly influence Marion. Using the equity
method and average book value to compute any gain or loss on sale, what
amounts appear in Pierces 2015 income statement?