Question 15.6: Jones Company owns 25 percent of Jason Company (both fictiti...

International Financial Statement Analysis

Jones Company owns 25 percent of Jason Company (both fictitious companies) and appropriately applies the equity method of accounting. Excess amortization related to undervalued assets at the time of the investment is $8,000 per year. During 2009 Jones sold $96,000 of inventory to Jason for $160,000. Jason resold $120,000 of this inventory during 2009. The remainder was sold in 2010. Jason reports income from
its operations of $800,000 in 2009 and $820,000 in 2010.

1. Calculate the equity income to be reported as a line item on Jones’s 2009 income statement.
2. Calculate the equity income to be reported as a line item on Jones’s 2010 income statement.

The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

This Question has been Answered.

Already have an account?

Related Answered Questions

Question: 15.7

Joint Venture Assume that hypothetical Companies A and B enter into a joint venture, each with a 50 percent interest. The first column presents the assumed financial statement for the joint ...

Verified Answer:

First, examine the income statement. Notice that n...

Question: 15.11

The reporting unit of a U.S. corporation (e.g., a division) has a fair value of $1,300,000 and a carrying book value of $1,400,000 that includes recorded goodwill of $300,000. ...

Verified Answer:

The impairment loss of $200,000 is reported on the...

Question: 15.8

Franklin Company, headquartered in the United States, acquired 100 percent of the outstanding shares of Jefferson, Inc. by issuing 1 million shares of its $1 par common stock ($15 market value). ...

Verified Answer:

Solution to 1: Pooling-of-Interest Method If the F...

Question: 15.4

On 1 January 2009 Parker Company acquired 30 percent of Prince Inc. common shares for the cash price of €500,000 (both companies are fictitious). It is determined that Parker has the ability to exert significant influence on Prince’s financial and operating decisions. ...

Verified Answer:

1. Goodwill (table 1) 2. Investment in Associate (...

Question: 15.5

On 1 January 2009, Wicker Company acquired a 25 percent interest in Foxworth Company (both companies are fictitious) for $1 million and used the equity method to account for its investment. The book value of Foxworth’s net assets on that date was $3,800,000. ...

Verified Answer:

1: Equity Income (table 1) 2: Investment in Foxwor...

Question: 15.1

On 1 January 2007, fictitious company Baxter Inc. invested $300,000 in fictitious company Cartel Co. debt securities (with a 6 percent coupon rate on par value, payable each 31 December). The par value of the securities was $275,000. ...

Verified Answer:

If the investment is held-to-maturity, the reporte...

Question: 15.2

Branch, a fictitious company, purchases a 20 percent interest in Williams (a fictitious company) for $200,000 on 1 January 2007. Williams reports income and dividends as follows: ...

Verified Answer:

Investment in Williams on 31 December 2009:

Question: 15.3

Assume that the hypothetical Blake Co. acquires 30 percent of the outstanding shares of the hypothetical Brown Co. At the acquisition date, book values and fair values of Brown’s recorded assets and liabilities are as follows: ...

Verified Answer:

As illustrated above, goodwill is the residual exc...