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On January 1, 2018, Roland, Inc., paid $200,000 for a 40% interest in Holt Corp.’s common...

On January 1, 2018, Roland, Inc., paid $200,000 for a 40% interest in Holt Corp.’s common stock. This investee had assets with a book value of $250,000 and liabilities of $10,000. A patent held by Holt having a $5,000 book value was actually worth $25,000. A building held by Holt had a book value of $70,000 and a fair value of $120,000. The patent had a remaining useful life of 5 years while the building had a 10 year remaining life. Any further excess cost was associated with goodwill. During 2018, Holt earned income of $60,000 and paid dividends of $8,000. During 2019, it had income of $80,000 and dividends of $12,000. During 2019, the fair value of Roland’s investment in Holt had risen from $210,000 to $230,000.

Assuming the equity method, what balance should appear in the investment in Holt account as of Dec. 31, 2019?

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Answer #1
For investing in Holt Corp
Investments in associates a/c Dr 200000
To cash 200000
Roland inc, receives dividend
Cash a/c Dr 4800
To Investment a/c 4800
Recording of net income
Investment in associates a/c Dr 24000
To Investment revenue a/c 24000
Ronald
Amount Paid for stake in Holt corp 200000
Holding 40%

Calculation of Value of Investment in associate under Equity method

Opening value in Investment in Associate a/c 200000
Less: Dividend received 4800
Add: Net income gained 24000
Closing value of Investment in Associate a/c 219200
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