Question

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,050. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $94,000.
During the next two years, the following information is available for Zip Company:



Income Dividends Declared Common Stock
Fair Value (12/31)
2019 $321,000
2020 $79,000 $6,200 376,000
2021 89,000 15,800 478,000


At December 31, 2020, Zip reports a net book value of $280,000. 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, 2020.

On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

Answer 1

The amount reported for the investment in Zip Company by Akron's December 31, 2021, balance sheet is $143,400, which is the fair value of the Common Stock of Zip Company.

What is the fair value of an investment?

The fair value of an investment is the current value and not the historical cost when the investment was made.

Fair value refers to the intrinsic worth of an asset or security.

Data and Calculations:

           Income   Dividends     Common Stock      Akron's Investment

                           Declared      Fair Value (12/31)     in Zip Company

2019                                             $321,000         $16,050 ($321,000 x 5%)

2020  $79,000   $6,200             376,000        $94,000 ($376,000 x 25%)

2021     89,000    15,800             478,000        $143,400 ($478,000 x 30%)

Excess attributed to share of Zip's franchises = $33,350 ($143,400 - $110,050).

Thus, the amount reported for the investment in Zip Company by Akron's December 31, 2021, balance sheet is $143,400.

Learn more about the fair value of an investment at brainly.com/question/13219936

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