ASH ACC 306 Week 1 DQ 1 Equity Method

1
ASH ACC 306 Week 1 DQ 1 Equity Method Check
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 Miller Properties - Equity method ? LO5 LO6On
January 2, 2011, Miller Properties paid 19
million for 1 million shares of Marlon Companys
6 million outstanding common shares. Millers CEO
became a member of Marlons board of directors
during the first quarter of 2011.The carrying
amount of Marlons net assets was 66 million.
Miller estimated the fair value of those net as-
sets to be the same except for a patent valued at
24 million above cost. The remaining
amortization period for the patent is 10
years.Marlon reported earnings of 12 million
and paid dividends of 6 million during 2011. On
December 31, 2011, Marlons common stock was
trading on the NYSE at 18.50 per
share.Required1. When considering whether to
account for its investment in Marlon under the
equity method, what criteria should Millers
management apply?2. Assume Miller accounts for
its investment in Marlon using the equity method.
Ignoring income taxes, deter- mine the amounts
related to the investment to be reported in its
2011 a. Income statement. b. Balance sheet.c.
Statement of cash flows.