Gant Company purchased 30 percent of the outstanding shares of Temp Company for $74,000 on January...
Gant Company purchased 30 percent of the outstanding shares of
Temp Company for $74,000 on January 1, 20X6. The following results
are reported for Temp Company:
| 20X6 | 20X7 | 20X8 | |||||||
| Net income | $ | 41,000 | $ | 36,000 | $ | 53,000 | |||
| Dividends paid | 10,000 | 26,000 | 15,000 | ||||||
| Fair value of shares held by Gant: | |||||||||
| January 1 | 74,000 | 93,000 | 90,000 | ||||||
| December 31 | 93,000 | 90,000 | 101,000 | ||||||
Required:
Determine the amounts reported by Gant as income from its
investment in Temp for each year and the balance in Gant’s
investment in Temp at the end of each year assuming that Gant uses
the following options in accounting for its investment in
Temp:
- Carries the investment at fair value.
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming that Gant uses the fair value option in accounting for its investment in Temp.
|
- Uses the equity method.
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming that Gant uses the equity method in accounting for its investment in Temp.
|
Homework Answers
Answer -
Solution a:
| Fair Value Method | |||
| 2016 | 2017 | 2018 | |
| Income From Investment: | |||
| Dividend Income (Dividend*30%) (a) | 3000 | 7800 | 4500 |
| Balance in investment | 93000 | 9300 | 93000 |
Solution b:
| Fair Value Method | |||
| 2016 | 2017 | 2018 | |
| Income From Investment: | |||
| Dividend Income (Dividend*30%) (a) | 3000 | 7800 | 4500 |
| Change in Fair Value (b) | 19000 | -3000 | 11000 |
| Income From Investment (a+b) | 22000 | 4800 | 6500 |
| Balance in Investment (Fair Value) | 93000 | 90000 | 101000 |
Solution c:
| Equity Method | |||
| 2016 | 2017 | 2018 | |
| Income From Investment (Net Income*30%) | 12300 | 10800 | 15900 |
| Balance in Investment: | |||
| Beginning Balance | 74000 | 83300 | 86300 |
| Add: Income from Investment | 12300 | 10800 | 15900 |
| Less: Dividend Income (Dividend*30%) | 3000 | 7800 | 4500 |
| Balance in Investment | 83,300 | 86300 | 97700 |
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