Question

*USE T ACCOUNTS

If Goebel Company acquired a 20% interest in Dobbs Company on December 31, 2018 for $290,000 and during 2019 Dobbs Company had net income of $150,000 and paid a cash dividend of $60,000, applying the fair value method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2019 of?

If Goebel Company acquired a 30% interest in Dobbs Company on December 31, 2018 for $440,000 and during 2019 Dobbs Company had net income of $150,000 and paid a cash dividend of $60,000, applying the equity method would give a debit balance in the Equity Investments (Dobbs) account at the end of 2019 of?

Answer 1

Fair value method - Equity Investment account won't be considered

a	Fair value method
	Equity Investments (Dobbs) Account
		Debit		Credit
	Cash	$ 290,000	Bal c/d	$ 290,000
b	Equity method
	Equity Investments (Dobbs) Account
		Debit		Credit
	Cash	$ 440,000	Dividend (60000*30%)	$    18,000
	Net Income (150000*30%)	$    45,000
			Bal c/d	$ 467,000
		$ 485,000		$ 485,000

Clarification for (a)

a	Fair value method
	Cash Account
		Debit		Credit
	Bal c/d	$ 290,000	Equity Investments (Dobbs) Account	$ 290,000