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’s 6 million outstanding common shares. Miller’s
CEO became a member of Marlon’s board of directors during the first
quarter of 2011.
The carrying amount of Marlon’s 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, Marlon’s 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’s 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.
