Question

Testbank Exercise 121

Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Sheffield Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Wildhorse Company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)

				(a) Fair Value Method				(b) Equity Method
		Transaction		Investment Account		Dividend Revenue		Investment Account		Investment Revenue
1.		At the beginning of Year 1, Sheffield bought 30% of Wildhorse's common stock at its book value. Total book value of all Wildhorse's common stock was $870,000 on this date.
2.		(a) During Year 1, Wildhorse reported $62,000 of net income.
		(b) During Year 1, Wildhorse paid $30,000 of dividends.
3.		(a) During Year 2, Wildhorse reported $31,000 of net income.
		(b) During Year 2, Wildhorse paid $19,500 of dividends.
4.		(a) During Year 3, Wildhorse reported a net loss of $8,000.
		(b) During Year 3, Wildhorse paid $4,100 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

Answer:-

	a) Fair Value Method	b) Equity Method
Transaction	Investment Account	Dividend Revenue	Investment Account	Investment Revenue
At the beginning of Year 1, Sheffield bought 30% of Wild horse's common stock at its book value. Total book value of all Wild horse's common stock was $870,000 on this date.	261000		261000
During Year 1, wild horse reported $62,000 of net income and paid $30,000 of dividends.		9000	18,600 and (9000)	18600
During Year 2, wild horse reported $31,000 of net income and paid $19,500 of dividends.		5850	9300 and (5850)	9300
During Year 3, wild horse reported a net loss of $8,000 and paid $4,100 of dividends.		1230	(2400) and (1230)	(2,400)
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.	261000	16080	270,420	25500