Question

Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue...

Fill 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.

Transaction

(a) Fair Value Method

(b) Equity Method

Investment Account

Dividend Revenue

Investment Account

Investment Revenue

At the beginning of Year 1, Crane bought 25% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $760,000 on this date.

During Year 1, Hudson reported $52,000 of net income and paid $26,000 of dividends.

During Year 2, Hudson reported $28,500 of net income and paid $21,000 of dividends.

During Year 3, Hudson reported a net loss of $9,000 and paid $4,200 of dividends.

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.

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Answer #1
a) Fair Value Method b) Equity Method
Transaction Investment Account Dividend Revenue Investment Account Investment Revenue
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At the beginning of Year 1, Crane bought 25% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $760,000 on this date
190000 190000
During Year 1, Hudson reported $52,000 of net income and paid $26,000 of dividends.
6500 13000 and (6500) 13000
During Year 2, Hudson reported $28,500 of net income and paid $21,000 of dividends. 5250 7125 and (5250) 7125
During Year 3, Hudson reported a net loss of $9,000 and paid $4,200 of dividends.
1050 (2250) and (1050) -2,250
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. 190000 12800 195075 17,875
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