In January 2014, Harold Corporation acquired 20% of Otis Companys outstanding common stock for $400,000. This investment

Question:

In January 2014, Harold acquired 20% of Otis Company’s outstanding for $400,000. This investment gave Harold the ability to exercise significant influence over Otis. The book value of these shares was $300,000. The excess of cost over book value was attributed to an identifiable intangible asset, a patent, which was undervalued on Otis’s and had a remaining 10-year useful life.
For the year ended December 31, 2014, Otis reported net income of $90,000 and paid cash dividends of $20,000 on its .

Required:
1. How much would Harold Corporation’s income increase in 2014 as a result of its investment in Otis?
2. What is the carrying value of Harold’s investment in Otis Company at December 31, 2014?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...