Question

On January 2, 2021, Miller Properties paid $28 million for 1 million shares of Marlon Company's 6 million outstanding common shares. Miller's CEO became a member of Marlon's board of directors during the first quarter of 2021.
The carrying amount of Marlon's net assets was $117 million. Miller estimated the fair value of those net assets to be the same except for a patent valued at $36 million above cost. The remaining amortization period for the patent is 10 years.
Marlon reported earnings of $54 million and paid dividends of $6 million during 2021. On December 31, 2021, Marlon's common stock was trading on the NYSE at $27.50 per share.
Required: 2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2021. (Do not round intermediate calculations. Enter all amounts as positive values. Enter your answers in millions rounded to 1 decimal places, (i.e., 5,500,000 should be entered as 5.5).):
a. Income statement million
b. Balance sheet million
c. Statement of cash flows
Operating cash flow million
Investing cash flow million

Answer 1

Answer:

A. Income statement $8.4 million

B. Balance sheet million $35.4 million

C. Operating cash flow million $1 million

Investing cash flow million=$28 million

Explanation:

a. Calculation for Income statement million

Using this formula

Income statement=Investment revenue -Patent amortization adjustment

Let plug in the formula

Income statement= ($54 million × 1/6)-([$36 million] × 1/6]÷10 years)

Income statement=$ 9.0-$0.6

Income statement=$8.4 million

Therefore Income statement million will be $8.4 million

b. Preparation of the Balance sheet million

Cost $28 million

Add Investment revenue $9.0 million

($54 million × 1/6)

Less Dividend ($1 million)

($6 million × 1/6)

Less Patent amortization adjustment ($0.6 million)

([$36 million] × 1/6]÷10 years)

Balance sheet million $35.4 million

($28 million+$9.0 million-$1 million-$0.6 million)

Therefore Balance sheet million will be $35.4 million

c. Preparation of the Statement of cash flows

Operating cash flow million=($6 million × 1/6)

Operating cash flow million= $1 million

Investing cash flow million=$28 million

Therefore Operating cash flow million will be $1 million while the Investing cash flow million will be $28 million.