Question

Ch 17 in-Class Practice Problem First Name: Last Name: Equity Investments --Fair value and equity methods Fil in the dollar changes caused in the investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company (a) Fair Value Method Investment Dividend Account Revenue (b) Equity Method Investment Investment Account Revenue Transaction 1. At the beginning of Year 1, Crane bought 30% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $800,000 on this date. 2. During Year 1, Hudson reported $60,000 of net income and paid $30,000 of dividends 3. During Year 2, Hudson reported $30,000 of net income and paid $20,000 of dividends. 4. During Year 3, Hudson reported a net loss of $10,000 and paid $4,000 of dividends. 5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.

Answer 1

Transaction (a) Fair Value Method Investment Dividend Account Revenue 2,40,000 (b) Equity Method Investment Investment Account Revenue 2,40,000 9,000 18,000 | 1. At the beginning of Year 1, Crane bought 30% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $800,000 on this date. 12. During Year 1, Hudson reported $60,000 of net income and paid $30,000 of dividends. 3. During Year 2, Hudson reported $30,000 of net income and paid $20,000 of dividends. 4. During Year 3, Hudson reported a net loss of $10,000 and paid $4,000 of dividends. 5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue. 6,000 9,000 $18,000 and ($9,000) $9,000 and ($6,000) ($3,000 and ($1,200) 2,47,800 1,200 (3,000 2,40,000 16,200 24,000 Explanation: Every amounts are multiplied by 30%