Fair Value to Equity Method with Goodwill On January 1

Fair Value to Equity Method with Goodwill On January 1, 2010, Millay Inc. paid$700,000 for
10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso.
At that date the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s
identifiable assets and liabilities were equal to their book values. Millay does not have the ability
to exercise significant influence over the operating and financial policies of Genso. Millay
received dividends of $1.50 per share from Genso on October 1, 2010. Genso reported net
income of $550,000 for the year ended December 31, 2010. On July 1, 2011, Millay paid
$2,325,000 for 30,000 additional shares of Genso Company’s voting common stock which
represents a 30% investment in Genso. The fair values of all of Genso’ identifiable assets net
of liabilities were equal to their book values of $6,550,000. As a result of this transaction, Millay
has the ability to exercise significant influence over the operating and financial policies of
Genso. Millay received dividends of $2.00 per share from Genso on April 1, 2011, and $2.50
per share on October 1, 2011. Genso reported net income of $650,000 for the year ended
December 31, 2011, and $350,000 for the 6 months ended December 31, 2011.(a) Prepare a
schedule showing the income or loss before income taxes for the year ended December 31,
2010, that Millay should report from its investment in Genso in its income statement issued in
March 2011.(b) During March 2012, Millay issues comparative financial statements for 2010 and
2011. Prepare schedules showing the income or loss before income taxes for the years ended
December 31, 2010 and 2011, that Millay should report from its investment in Genso.(AICPA
adapted)View Solution:
Fair Value to Equity Method with Goodwill On January 1
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