Answer:
$923,450
Explanation:
The question is to calculate the equity method balance of Domingo's investment in Martes. Inc at December 31,2015
Step 1: Determine the amortization of patents
Particulars Amount
Martes Inc Assets' Book Value $4,808,000
Subtract: Liabilities ($968,000)
Martes Inc Net Assets Book Value $3,840,000
20% Voting Stock Book Value $768,000
(20% of $3,840,000)
Subtract: Purchase cost of the 20% ($889,000)
Excess of Cost over book value $121,000
Patent (the excess above) $121,000
Amortization of the patent in 10 years = $121,000/10 years = $12,100
Step 2: Calculate the Equity Investment of Domingo Inc
Particulars Amount
Cost of Investment $889,000
Income accrued 2017 (0.2 x $225,000) $45,000
Subtract: Declared dividend (0.2 x $104,000) ($20,800)
Income Accrued 2018 (0.2 x $276,250) $55,250
Subtract: Patent Amortization ($12,100)
Subtract: Dividend declared 2018 (0.2 x $104,000) ($20,800)
Subtract: Patent Amortization ($12,100)
Domingo Inc's Investment in Martes Inc $923,450
