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ACCY 506 Spring 2023

Homework Assignment One (due 1/31/2023)

Question One:

On January 1, 2016, Moline Co. paid $80,000 for a 20% interest in Oak Industries.  Oak Industries’ stockholders’ equity amounted to $310,000 on that date.  The excess of purchase price over book values was due to an unrecorded patent valued at $90,000 with a 10-year life.  During 2016, Oak Industries reported income of $50,000 and paid dividends of $8,000.  During 2017, it reported income of $60,000 and dividends of $12,000.  Assume that Moline Co. has significant influence over the operations of Oak Industries.

Required:

a. What is the amount of goodwill?

b. What is Equity Income for 2016?

c. What is the balance in the Equity Investment account on December 31, 2016?

d. What is Equity Income for 2017?

e. What is the balance in the Equity Investment account on December 31, 2017?

Question Two:

Georgia, Inc. bought 30% of Carolina Company on January 1, 2016 for $225,000.  The equity method was used.  No amortization was required.  In 2016, Carolina shipped to Georgia merchandise with a cost of $12,000 and a selling price of $15,600.  One-third of the merchandise remained in Georgia’s inventory at year-end and was sold in 2017.  In 2017, Carolina received merchandise from Georgia, who recorded a gross profit of $18,000 on the sale.  One-fourth of the merchandise remained in ending inventory.  Carolina reported net income of $50,000 in 2016 and $62,000 in 2017.  Dividends of $8,000 were paid by Carolina each year.  

Required:  Prepare all equity method entries for 2016 and 2017.