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price) of this amount in inventory as of December 31, 2012. These
goods are to be sold to outside parties during 2013.
Stokes reported a loss of $60,000 for 2012, $40,000 from continuing
operations and $20,000 from an extraordinary loss. The company still
manages to pay a $10,000 cash dividend during the year.
During 2013, Stokes reported a $40,000 net income and distributed a
cash dividend of $12,000. It made additional inventory sales of
$80,000 to Hobson during the period. The original cost of the
merchandise was $50,000. All but 30 percent of this inventory had
been resold to outside parties by the end of the 2013 fiscal year.
Prepare all journal entries for Hobson for 2012 and 2013 in
connection with this investment. Assume that the equity method is
applied.
1-30
On July 1, 2011, Gibson Company acquired 75,000 of the outstanding
shares of Miller Company for $12 per share. This acquisition gave
Gibson a 35 percent ownership of Miller and allowed Gibson to
significantly influence the investee’s decisions.
As of July 1, 2011, the investee had assets with a book value of $2
million and liabilities of $400,000. At the time, Miller held equipment
appraised at $150,000 above book value; it was considered to have a
seven–year remaining life with no salvage value. Miller also held a
copyright with a five–year remaining life on its books that was
undervalued by $650,000. Any remaining excess cost was attributable
to goodwill. Depreciation and amortization are computed using the
straight–line method. Gibson applies the equity method for its
investment in Miller.
Miller’s policy is to pay a $1 per share cash dividend every April 1
and October 1. Miller’s income, earned evenly throughout each year,
was $550,000 in 2011, $575,000 in 2012, and $620,000 in 2013.
In addition, Gibson sold inventory costing $90,000 to Miller for
$150,000 during 2012. Miller resold $80,000 of this inventory during
2012 and the remaining $70,000 during 2013.
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ACCT 549 Week 5 Homework Problems