Based on the information provided, what amount of income will be reported by Wheeley from its investment in Twain for the year 2007?

A. $22,400

B. $11,800

C. $4,800

D. $12,400

2. Based on the information provided, what will be the balance in the investment account on December 31, 2007 reported by Wheeley?

A. $172,000

B. $173,800

C. $183,800

D. $194,400

 

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Chapter 02 - Reporting Intercorporate Interests PROBLEM 7 On January 1 2007, Wheeley Company issued common shares with a par value of $20,000 and a market value of $172,000 in exchange for 40 percent ownership of Twain Company. Balance sheet information reported by Twain on that date is given below: TWAIN COMPANY Balance Sheet January 1, 2007 Book Value Fair Value Assets Cash and Receivables $100,000 $100,000 Inventory (FIFO Basis) 88,000 100,000 Buildings and Equipment (net) 168,000 225,000 Patent 40,000 Total Assets $356,000 $465,000 Liabilities and Equities Accounts Payable $35,000 $35,000 Common Stock 120,000 Additional Paid-In Capital 25,000 Retained Earnings 176,000 Total Liabilities and Equities $356,000 Twain reported net income of $56,000 and paid dividends of $25,000 during the year. Wheeley uses the equity method of accounting. The estimated economic life of the patents held by Twain is 8 years. The buildings and equipment are expected to last 6 more years on average with zero salvage value. Chapter 02 - Reporting Intercorporate Interests PROBLEM 7 On January 1 2007, Wheeley Company issued common shares with a par value of $20,000 and a market value of $172,000 in exchange for 40 percent ownership of Twain Company. Balance sheet information reported by Twain on that date is given below: TWAIN COMPANY Balance Sheet January 1, 2007 Book Value Fair Value Assets Cash and Receivables $100,000 $100,000 Inventory (FIFO Basis) 88,000 100,000 Buildings and Equipment (net) 168,000 225,000 Patent 40,000 Total Assets $356,000 $465,000 Liabilities and Equities Accounts Payable $35,000 $35,000 Common Stock 120,000 Additional Paid-In Capital 25,000 Retained Earnings 176,000 Total Liabilities and Equities $356,000 Twain reported net income of $56,000 and paid dividends of $25,000 during the year. Wheeley uses the equity method of accounting. The estimated economic life of the patents held by Twain is 8 years. The buildings and equipment are expected to last 6 more years on average with zero salvage value.

Answer rating: 100% (QA)

1 Net income reported by Twain 56000 Extra expenses to ... View the full answer