Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 3

On January 1, 2010, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation's common stock.This investee had assets with a book value of $200,000 and liabilities of $75,000.A patent held by Holister having a $5,000 book value was actually worth $20,000.This patent had a six-year remaining life.Any further excess cost associated with this acquisition was attributed to goodwill.During 2010, Holister earned income of $30,000 and paid dividends of $10,000.In 2011, it had income of $50,000 and dividends of $15,000.During 2011, the fair value of Allison's investment in Holister had risen from $68,000 to $75,000.
a.Assuming Alison uses the equity method, what balance should appear in the Investment in Holister account as of December 31, 2011
b.Assuming Alison uses the fair-value option, what income from the investment in Holister should be reported for 2011