Question: Anderson acquires 10 percent of the outstanding voting shares of

Anderson acquires 10 percent of the outstanding voting shares of Barringer on January 1, 2011, for $96,620 and categorizes the investment as an available-for-sale security. An additional 20 percent of the stock is purchased on January 1, 2012, for $234650, which gives Anderson the ability to significantly influence Barringer. Barringer has a book value of $835,000 at January 1, 2011, and records net income of $230,000 for that year. Barringer paid dividends of $98,000 during 2011. The book values of Barringer’s asset and liability accounts are considered as equal to fair values except for a copyright whose value accounted for Anderson’s excess cost in each purchase. The copyright had a remaining life of 16 years at January 1, 2011.
Barringer reported $260,700 of net income during 2012 and $358700 in 2013. Dividends of $119,000 are paid in each of these years. Anderson uses the equity method.
A) On comparative income statements issued in 2013 by Anderson for 2011 and 2012, what amounts of income would be reported in connection with the company’s investment in Barringer?
Equity income 2011
Equity income 2012
B) If Anderson sells its entire investment in Barringer on January 1, 2014, for $475,730 cash, what is the impact on Anderson's income?
C) Assume that Anderson sells inventory to Barringer during 2012 and 2013 as follows:

What amount of equity income should Anderson recognize for the year2013?

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  • CreatedJuly 26, 2013
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