On January 1, 2013, an investor purchases 18,000 common shares of an investee at $12 (cash)...

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Accounting

On January 1, 2013, an investor purchases 18,000 common sharesof an investee at $12 (cash) per share. The shares represent 20%ownership in the investee. The investee shares are not considered"marketable" because they do not trade on an active exchange. OnJanuary 1, 2013, the book value of the investee's assets andliabilities equals $900,000 and $200,000, respectively. On thatdate, the appraised fair values of the investee's identifiable netassets approximated the recorded book values, except for a customerlist. On January 1, 2013, the customer list had a recorded bookvalue of $0, an estimated fair value equal to $50,000 and a 5 yearremaining useful life. During the year ended December 31, 2013, theinvestee company reported net income equal to $42,000 and dividendsequal to $20,000.
Noncontrolling investment accounting (price different from bookvalue)
Assume the investor can exert significant influence over theinvestee. Determine the balance in the "Investment in Investee"account at December 31, 2013.

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Particulars Amount Amount Investment cost 18000 x 12 21600000 Net asset as on the date of acquisition of common shares Book value of assets 90000000 Add See Answer

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On January 1, 2013, an investor purchases 18,000 common sharesof an investee at $12 (cash) per share. The shares represent 20%ownership in the investee. The investee shares are not considered"marketable" because they do not trade on an active exchange. OnJanuary 1, 2013, the book value of the investee's assets andliabilities equals $900,000 and $200,000, respectively. On thatdate, the appraised fair values of the investee's identifiable netassets approximated the recorded book values, except for a customerlist. On January 1, 2013, the customer list had a recorded bookvalue of $0, an estimated fair value equal to $50,000 and a 5 yearremaining useful life. During the year ended December 31, 2013, theinvestee company reported net income equal to $42,000 and dividendsequal to $20,000.Noncontrolling investment accounting (price different from bookvalue)Assume the investor can exert significant influence over theinvestee. Determine the balance in the "Investment in Investee"account at December 31, 2013.