# View the step-by-step solution to: Problem 1-25 This template can be used to complete the identified

The question is below, but I am attaching a template. It is the 1-27 tab on the spreadsheet. Thanks!
On July 1, 2007, Gibson Company acquired 75,000 of the outstanding shares of Miller Company for \$12 per share. This acquisition gave Gibson a 35 percent ownership of Miller and allowed Gibson to significantly influence the investee's decisions.

As of July 1, 2007, the investee had assets with a book value of \$2 million and liabilities of \$400,000. At the time, Miller held equipment appraised at \$150,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Miller also held a copyright with a five-year remaining life on its books that was undervalued by \$650,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Gibson applies the equity method for its investment in Miller.

Miller's policy is to pay a \$1 per share cash dividend every April 1 and October 1. Miller's income, earned evenly throughout each year, was \$550,000 in 2007, \$575,000 in 2008, and \$620,000 in 2009.

In addition, Gibson sold inventory costing \$90,000 to Miller for \$150,000 during 2008. Miller resold \$80,000 of this inventory during 2008 and the remaining \$70,000 during 2009.

a. Prepare a schedule computing the equity income to be recognized by Gibson during each of these years.

b. Compute Gibson's investment in Miller Company's balance as of December 31, 2009.

Problem 1-25
This template can be used to complete the identified problem. Note that &quot;??&quot; indicates you should fill in an appropriate answer.
Schedule 1: Allocation of acquisition price and related amortization
Acquisition price
??
Payment in excess of book value

\$210,000
(??)
#VALUE!

Excess payment identified with
specific assets
Amount
??
??

Building
Royalty Agreement
Total Annual Amortization

Annual
Life (Yrs) Amortization
10
20
0

Schedule 2: Deferral of Unrealized Gain - 2008
Inventory remaining at end of year
Gross profit percentage
Gross profit remaining in inventory
Ownership %
Unrealized gain to be deferred until 2009

??
??
??
40%
??

Schedule 3: Deferral of Unrealized Gain - 2009
Inventory remaining at end of year
Gross profit percentage
Gross profit remaining in inventory
??
Unrealized gain to be deferred until 2010

\$24,000
??
40%

Journal Entries (note all entries should have an appropriate description)
Date

Account
1/1/2008 Investment in Stokes Co
??

DR
??

CR
??

&lt;INSERT DESCRIPTION&gt;
During 2008 Cash
??

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2008 Equity in Stokes Income - Loss
??
Investment in Stokes Co.

??
??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2008 ??
Investment in Stokes Co.

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2008 Equity in Stokes Income - Loss
??

??
??

&lt;INSERT DESCRIPTION&gt;
During 2009 Cash
Investment in Stokes Co.

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2009 ??
Equity in Stokes Income

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2009 Equity in Stokes Income
Investment in Stokes Co.

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2009 Investment in Stokes Co.
Equity in Stokes Income

??
??

&lt;INSERT DESCRIPTION&gt;
12/31/2009 Equity in Stokes Income
Investment in Stokes Co
&lt;INSERT DESCRIPTION&gt;

??
??

Problem 1-27
This template can be used to complete the identified problem. Note that &quot;??&quot; indicates you should fill in an appropriate answer.
Schedule 1: Acquisition Price Allocation and Amortization
Acquisition price
Book value acquired
Payment in excess of book value

??
??

Excess payment identified with specific assets:

Equipment
Goodwill
Total annual amortization

Amount
??
??
??

Life

??

Annual
Amortization
7 ??
5 ??
??
\$-

Schedule 2: Deferral of Unrealized Intercompany Gain
Inventory remaining at year end
Markup percentage
Total markup
Investor Ownership Percentage
Unrealized intercompany gain

??
40%
#VALUE!
35%
??

Part a.
Equity Income - 2007
Basic Equity (income) accrual
Amortization
Equity Income - 2007

??
(??)

Equity Income - 2008
Basic Equity (income) accrual
Amortization
Deferral of unrealized gain
Equity Income - 2008

??
(??)
(??)

Equity Income - 2009
Basic Equity (income) accrual
Amortization
Recognition of deferred gain
Equity Income - 2009

??
(??)
??

0

0

0

Part b.
Acquisition price
2007 Equity Income
2008 Eqiuty Income
2009 Equity Income
Investment in Miller - 12/31/09

??
??
(??)
??
(??)
??
(??)
0

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