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Allan 1/1/2012 0.15 FV BV NI Div's 413,333 280,000 80,000 30,000 Allan 1/1/2013 FV BV NI Div's FV 12/31/2013 0.1 buys % of for Bellevue 62,000 is FV

On 1/1/12, Allan aquires 15% of Bellevue's outstanding common stock for $62000. Allan classifies the investment as an available for sale security and records any unrealized holding gains or losses directly into owner's equity. On 1/1/13 Allan buys an additional 10% of Bellevue for $43,800, providing Allan the ability to significantly influence Bellevue's decisions. The following info is available: 2012 Net income $80,000, Div paid $30,000 12/31/12 FV $438,000. 2013 Net income $100,000, Div paid $40,000 12/31/13 FV $468,000.
In each purchase, Allan attributes any excess of cost over book value to Bellevue’s franchise agreements that had a remaining life of 10 years at 1/1/2012. Also at 1/1/2012, Bellevue reports a net book value of $280,000.
a) Assume Allan applies the equity method to its investment in Bellevue
1) On Allan’s 12/31/2013 balance sheet, what amount is reported for the Bellevue account
2) What amount of equity income should Allan report in 2013?
3) Prepare the Jan 1 2013 journal entry to retrospectively adjust the Bellevue account to the equity method.
b) Assume Allan elects the fair value reporting option for its investment in Bellevue
1) On Allan’s 12/31/2013 balance sheet, what amount is reported for the Bellevue account
2) What amount of income from its investment in Bellevue should Allan report in 2013?
Allan buys % of Bellevue 1/1/2012 0.15 for 62,000 FV 413,333 is FV BV + excess paid?? `20k=.15x 133,333 BV 280,000 0.15 42,000 vs paid 62,000 20,000 excess to franchise NI 80,000 10 yrs remain as of 1/1/12 Div's 30,000 2,000 per year Allan buys % of Bellevue 1/1/2013 0.1 for 43,800 FV 438,000 BV 330,000 0.1 33,000 vs paid 43,800 10,800 excess to franchise NI 100,000 9 yrs remain as of 1/1/13 Div's 40,000 1,200 per year FV 12/31/2013 468,000 Equity Transactions (equity as soon as eligible on 1/1/13) 1/1/2012 Investment in Bellevue 62,000 Cash 62,000 12/31/2012 Cash 4,500 Dividend income 4,500 12/13/2012 Unrealized holding gain/loss-Equity 3,700 Fair value Adjustment(AFS) 3,700 ANS part a 1/1/2013 Investment in Bellevue 43,800 1) 113,900 Cash 43,800 2) 31,800 1/1/2013 R/E 4,500 3) Fair value Adjustment(AFS) 3,700 Investment in Bellevue 5,500 Unrealized holding gain/loss-Equity 3,700 RETRO to this but R/E not income Equity Income 10,000 12/31/2012 Cash 4,500 12/31/2013 Equity Income 3,200 Investment in Bellevue 4,500 Investment in Bellevue 3,200 12/13/2012 Equity Income 2,000 12/31/2013 Cash 10,000 Investment in Bellevue 2,000 Investment in Bellevue 10,000 12/13/2012 Investment in Bellevue 12,000 12/13/2013 Investment in Bellevue 25,000 Equity Income 12,000 Equity Income 25,000 Fair Value reporting Option ?? or this?? 1/1/2012 Investment in Bellevue 62,000 1/1/2012 Investment in Bellevue 62,000 Cash 62,000 Cash 62,000 12/31/2012 Cash 4,500 12/31/2012 Cash 4,500 Dividend income 4,500 Dividend income 4,500 12/13/2012 Unrealized holding gain/loss-Equity 24,667 12/13/2012 Investment in Bellevue 3,700 Fair value Adjustment(AFS) 24,667 Investment Income 3,700 1/1/2013 Investment in Bellevue 43,800 1/1/2013 Investment in Bellevue 43,800 Cash 43,800 Cash 43,800 adjust opening balance of R/E but no J/E to change to Fair Value reporting Can't choose Fair Value method now - only when 1st purchased? opening balance of R/E: make R/E change by 468,000(FV) x .25 vs Allan's BV ) 117000 105,800 11,200 12/31/2013 Cash 10,000 12/31/2013 Cash 10,000 Dividend income 10,000 Dividend income 10,000 12/31/2013 Investment in Bellevue 7,500 12/31/2013 Investment in Bellevue 7,500 Investment Income 7,500 Investment Income 7,500 ANS part b ANS part b 1) 113,300 1) 117,000 2) 17,500 2) 17,500
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This question was asked on Jan 13, 2013.

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