Question

# C1.       On January 1, 2020, Skyline Co. paid \$200,000 for a 40% interest in Allen Industries....

C1.       On January 1, 2020, Skyline Co. paid \$200,000 for a 40% interest in Allen Industries. Allen Industries’ stockholders’ equity amounted to \$300,000 on that date. The excess of purchase price over book values was due to an unrecorded patent valued at \$200,000 with a 5-year life. During 2020, Allen Industries reported income of \$80,000 and paid dividends of \$18,000. During 2021, it reported income of \$90,000 and dividends of \$48,000.

Assume that Skyline Co. has significant influence over the operations of Allen Industries.

Required:

a. What is the amount of goodwill?

b. What is Equity Income for 2020?

c.    What is the balance in the Equity Investment account at December 31, 2020?

d. What is Equity Income for 2021?

e. What is the balance in the Equity Investment account at December 31, 2021?

a. )

Goodwill = 200,000 – (300,000 x 40%) = \$80,000
b.)

Equity Income 2020 = \$32,000 (80,000 *40%)
c.)

Balance in equity investment account on December 31, 2020

=80,000 – 18,000

= \$62,000

d.)

Calculate Equity Income for 2021?

\$36,000 (90,000 *40%)

e.)

Balance in equity investment account on December 31, 2021

=62,000– 36,000

= \$26,000

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