16.
Falcon, Inc. acquired 30% of Dodson Corporation for $100,000 on December 31, 2009. During the calendar year 2010, Dodson had net earnings of $400,000 and paid total dividends of $50,000. The fair value of Dodson Corporation’s stock at yearend was $160,000. Falcon mistakenly recorded these transactions using the fair value method (available-for-sale classification) rather than the equity method of accounting.
A.Determine the effect the error would have on the investment account at December 31, 2010.
B.Determine the effect the error would have on net income for the year ending December 31, 2010.
17.On January 3, 2010, Blanton Co. purchased 24% of Martin Company's voting stock for $100,000. During 2010, Martin recorded income of $90,000 and paid total dividends of $15,000. Blanton uses the equity method to account for this investment. Calculate Blanton’s income from the Martin investment and the December 31, 2010, balance sheet value of its long-term equity investment in Martin. Show your work.
18.
Before adjusting its current investments in equity securities, Patton Company has total current assets and current liabilities of $200,000 and $60,000, respectively. During the current year, Patton has net income of $20,000 before the effects of any market value adjustments with 30,000 shares of common stock outstanding. Included in current assets are trading securities recorded at their original cost of $100,000 and available-for-sale investments recorded at their original cost of $7,000. The current market value of both investments increased by 15%. Patton properly accounts for both securities.
A.Determine how Paton’s current ratio and earnings per share will be affected by the yearend adjustments for its investments.
B.Determine how the current ratio and earnings per share will differ if the available-for-sale investment is classified as long-term.
19.On November 30, 2010, Arnold Company purchased 100% of the outstanding voting common stock of Compton Corporation for $100,000. At that date the fair market value of Compton assets less liabilities was $80,000. What amount, if any, of goodwill must Arnold recognize in connection with its purchase of Compton? Where should Arnold Company report this amount?