Fair Value Method
Small Company reported 20X7 net income of $40,000 and paid dividends of $15,000 during the year. Mock Corporation acquired 20 percent of Small’s shares on January 1, 20X7, for $105,000. At December 31, 20X7, Mock determined the fair value of the shares of Small to be $121,000. Mock reported operating income of $90,000 for 20X7.
Required
Compute Mock’s net income for 20X7 assuming it uses
a. The cost method in accounting for its investment in Small.
b. The equity method in accounting for its investment in Small.
c. The fair value method in accounting for its investment in Small.
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