Question

On January 1, 2012, Mehan, Incorporation purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2013 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2012, was $1,000,000. The book value of Cook on January 1, 2013, was $1,150,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over five years. Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net income Dividends 2012 $200,000 $50,000 2013 $225,000 50,000 a. What is the amount of income reported in 2012 and 2013, and the balamce invested in dec,31 2013?

Answer 1

Ans a Amount of income reported in 2012 is only the dividend income
as in that year N=Mehan dint have significant influence
$50000*15%	$7,500	answer
Amount reported in 2013
225000*40%	90000
Now
Acquistion price-Book value
300000-(1150000*25%)	12500
excess will be amortized over 5 years
12500/5	2500
Hence income reported in 2013
90000-2500	$87,500	answer
ans 2
Balance in investment in 2013 is
Balance on 1/1/2013	150000
Acquistion in 2013	300000
Income in 2013	$90,000
Balance invested	540000	answer
If any doubt please comment