Question

On January 3, 2018, Matteson Corporation acquired 30 percent of the outstanding common stock of O’Toole Company for $1,454,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $848,000. 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 $337,000 and declared cash dividends of $30,000. At December 31, 2018, what should Matteson report as its investment in O’Toole under the equity method

Answer 1

Answer:

Investment in O'Toole as on 31 December = $1,485,500

Explanation:

As for the provided information, we have,

Cost of purchase of shares in O'Toole = $1,454,000

Add: Share in income for the year = $337,000 $\times$ 30% = $101,100

Less: Cost of copyrights to be amortized

$1,454,000 - $848,000 = $606,000/10 year = $60,600

Also in equity method dividends are deducted from carrying value of investment = $30,000 $\times$ 30% = $9,000

Therefore, carrying value of investment at O'Toole = $1,485,500