Ravine Corporation purchased 40 percent ownership of ValleyIndustries for $114,400 on January 1, 20X6, when Valley had capitalstock of $241,000 and retained earnings of $45,000. During theperiod of January 1, 20X6, through December 31, 20X9, the marketvalue of Ravine's investment in Valley's stock increased by $10,000each year. The following data were reported by the companies forthe years 20X6 through 20X9:
Dividends Declared Year Operating Income,
Ravine Corporation Net Income,
Valley Industries Ravine Valley 20X6 $ 146,000 $ 46,000 $ 75,000 $ 36,000 20X7 90,000 66,000 75,000 56,000 20X8 232,000 10,000 95,000 40,000 20X9 166,000 56,000 105,000 36,000
Required:
a. What net income would Ravine Corporation have reported for eachof the years, assuming Ravine accounts for the intercorporateinvestment either by carrying the investment at fair value, or byusing the equity method?
Net Income Year Fair Value Equity Method 2016 ? 164400 2017 ? 116400 2018 ? 236000 2019 ? 188400
Ravine Corporation purchased 40 percent ownership of ValleyIndustries for $114,400 on January 1, 20X6, when Valley had capitalstock of $241,000 and retained earnings of $45,000. During theperiod of January 1, 20X6, through December 31, 20X9, the marketvalue of Ravine's investment in Valley's stock increased by $10,000each year. The following data were reported by the companies forthe years 20X6 through 20X9:
| Dividends Declared | ||||||||||||||||
| Year | Operating Income, Ravine Corporation | Net Income, Valley Industries | Ravine | Valley | ||||||||||||
| 20X6 | $ | 146,000 | $ | 46,000 | $ | 75,000 | $ | 36,000 | ||||||||
| 20X7 | 90,000 | 66,000 | 75,000 | 56,000 | ||||||||||||
| 20X8 | 232,000 | 10,000 | 95,000 | 40,000 | ||||||||||||
| 20X9 | 166,000 | 56,000 | 105,000 | 36,000 | ||||||||||||
Required:
a. What net income would Ravine Corporation have reported for eachof the years, assuming Ravine accounts for the intercorporateinvestment either by carrying the investment at fair value, or byusing the equity method?
| Net Income | ||
| Year | Fair Value | Equity Method |
| 2016 | ? | 164400 |
| 2017 | ? | 116400 |
| 2018 | ? | 236000 |
| 2019 | ? | 188400 |
Related questions
| Ravine Corporation purchased 30 percent ownership of Valley Industries for $86,400 on January 1, 20X6, when Valley had capital stock of $246,000 and retained earnings of $42,000. The following data were reported by the companies for the years 20X6 through 20X9: |
| Dividends Declared | ||||||||||||
| Year | Operating Income, Ravine Corporation | Net Income, Valley Industries | Ravine | Valley | ||||||||
| 20X6 | $ | 160,000 | $ | 39,000 | $ | 82,000 | $ | 29,000 | ||||
| 20X7 | 85,000 | 59,000 | 82,000 | 49,000 | ||||||||
| 20X8 | 227,000 | 10,000 | 102,000 | 40,000 | ||||||||
| 20X9 | 180,000 | 49,000 | 112,000 | 29,000 | ||||||||
| Required: |
| a. | What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment using the cost method and the equity method? |
| b-1. | Give all appropriate journal entries for 20X8 that Ravine made under the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| b-2. | Give all appropriate journal entries for 20X8 that Ravine made under the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| Gant Company purchased 30 percent of the outstanding shares of Temp Company for $82,000 on January 1, 20X6. The following results are reported for Temp Company: |
| 20X6 | 20X7 | 20X8 | |||||||
| Net income | $ | 44,000 | $ | 39,000 | $ | 64,000 | |||
| Dividends paid | 12,000 | 30,000 | 17,000 | ||||||
| Fair value of shares held by Gant: | |||||||||
| January 1 | 82,000 | 101,000 | 98,000 | ||||||
| December 31 | 101,000 | 98,000 | 109,000 | ||||||
| Required: |
| Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in GantΓ’ΒΒs investment in Temp at the end of each year assuming that Gant uses the following methods in accounting for its investment in Temp: |
| a. | Cost method. |
| b. | Equity method. |
| c. | Fair value method. |
During review of the adjusting entries to be recorded onDecember 31, 20X8, Grand Corporation discovered that it hadinappropriately been using the cost method in accounting for itsinvestment in Case Products Corporation. Grand purchased 100percent ownership of Case Products on January 1, 20X6, for $56,000,at which time Case Products reported retained earnings of $14,000and capital stock outstanding of $27,000. The differential wasattributable to patents with a life of eight years. Income anddividends of Case Products were:
Year Net Income Dividends
20X6 $24,000 $8,000
20X7 32,000 10,000
20X8 40,000 10,000
| Required: |
Prepare the correcting entry required on December 31, 20X8, toproperly report the investment under the equity method, assumingthe books have not been closed. Case Products' dividends weredeclared in early November and paid in early December eachyear. |
Record the correcting entry. 20X8
