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 Gantâs 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.
| 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 Gantâs 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. |
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.) |
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 |
| Marlow Company acquired 40 percent of the voting shares of Brown Company on January 1, 20X8, for $85,000. The following results are reported for Brown Company: |
| 20X8 | 20X9 | |||||
| Net income | $ | 20,000 | $ | 30,000 | ||
| Dividends paid | 10,000 | 15,000 | ||||
| Fair value of shares held by Marlow: | ||||||
| January 1 | 85,000 | 97,000 | ||||
| December 31 | 97,000 | 92,000 | ||||
| Required: |
| a. | Give all journal entries recorded by Marlow for 20X8 assuming that it uses the fair value method in accounting for its investment in Brown. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) | ||
| Record the purchase of Brown Company stock. Record the dividends from Brown Company. Record the change in value of Brown stock.
|
