Question Details

ACC 306 WEEK 1 DISCUSSION 1 EQUITY METHOD
P 12-13 -  Miller Properties - Equity method ● LO5 LO6
On January 2, 2011, Miller Properties paid $19 million for 1 million shares of Marlon Company- 6 million outstanding common shares. Miller- CEO became a member of Marlon- board of directors during the first quarter of 2011.
The carrying amount of Marlon- net assets was $66 million. Miller estimated the fair value of those net assets 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, Marlon- common stock was trading on the NYSE at $18.50 per share.
Required:
1. When considering whether to account for its investment in Marlon under the equity method, what criteria should Miller- 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.

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