On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company's common shares on the open market in exchange for $18,000. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,000.

During the next two years, the following information is available for Zip Company:

 

 Income Dividends Declared Common Stock

Fair Value (12/31)

2016                              $322,000

2017 $69,000 $6,000 $372,000

2018 $82,000 $15,600 $484,000

At December 31, 2017, Zip reports a net book value of $283,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2017.

 -Assume Akron applies the equity method to its Investment in Zip account:

 -What amount of equity income should Akron report for 2018?

 -On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

 -Assume Akron uses fair-value accounting for its Investment in Zip account:

 -What amount of income from its investment in Zip should Akron report for 2018?

 -On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?

a1.	Equity income
a2.	Investment in Zip account
b1.	Reported income
b2.	Investment in Zip account

Answer rating: 100% (QA)

Akrons total interest in Zip Company 25 5 30 Calculation of franchise agreements Purchase price of 2... View the full answer