Question: Equity Method Investment with Basis Differences Several Years Later Saxton Corporation purchased 25 percent of Taylor Companys voting stock on January 1, 2013, for $3

Equity Method Investment with Basis Differences Several Years Later Saxton Corporation

purchased 25 percent of Taylor Companys voting stock on January 1, 2013, for $3 million in cash. At

the date of acquisition, Taylor reported its total assets at $60 million and its total liabilities at $56 million.

Investigation revealed that Taylors plant and equipment (15-year life) was overvalued by $1.8 million

and it had an unreported customer database (2-year life) valued at $500,000. Taylor declares and pays

$100,000 in dividends and reports net income of $250,000 in 2016.

Required

Prepare the necessary journal entries on Saxtons books to report the above information for 2016 assum-

ing Saxton uses the equity method to report its investment

in addition to above question, assume the following reports

Taylor Company reported its net incomes and dividends as follows:

Years Net Incomes Dividends
2013 $200,000 $100,000
2014 $300,000 $100,000
2015 $400,000 $100,000

What is the balance of Investment on January 1, 2016?

How much goodwill is reported on Saxton Caompaany's balance sheet on December 31, 2015?

Prepare the journal entries for 2016 income and dividends.

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