On January 1, 2020, Archer, Incorporated, paid $100,000 for a 30% interest in Harley Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Harley having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Harley reported net income of $50,000 and paid dividends of $20,000 while in 2021 it reported net income of $75,000 and dividends of $30,000. Assume Archer has the ability to significantly influence the operations of Harley.The balance in the Investment in Harley account at December 31, 2020, is

Question

Quizplus · Accepted Answer

Archer's investment is initially recorded at cost ($100,000). Archer's share of Harley's net income for 2020 is 30% of $50,000, which is $15,000. Archer's share of dividends is 30% of $20,000, which is $6,000. The investment account is increased by the share of net income and decreased by the share of dividends. Therefore, the balance is $100,000 + $15,000 - $6,000 = $109,000. However, we must also account for the amortization of the excess patent value. The excess value is $30,000 ($40,000 - $10,000), and Archer's share is 30%, which is $9,000. Amortized over 6 years, the annual amortization is $1,500. Thus, the balance is $109,000 - $1,500 = $107,500.

On January 1, 2020, Archer, Incorporated, Paid $100,000 for a 30