Change from Fair Value Method to Equity Method ( Prospective treatment) Assume A owns 10% of...
Change from Fair Value Method to Equity Method ( Prospective treatment)
Assume A owns 10% of B on January 1, 2012. On July 1, 2012 A increases ownership to 40% by purchasing additional shares in B. The following represent the earnings and dividends of B for 2012.
Income Dividends
January 1 - June 30 50,000 30,000
July 1 - December 31 70,000 40,000
1. How much equity income is recognized by A in 2012.
2. How much dividend income is recognized by A in 2012.
Homework Answers
Solution 1:
Equity Income to be recognized by A in 2012 = Income of B from July 1 to Dec 31 * % of ownership by A
= $70,000*40% = $28,000
Solution 2:
Dividend income to be recognized by A in 2012 = Dividend from Jan 1 to June 30 * % of ownership before June 30
= $30,000*10% = $3,000
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