Fair Value Method
Gant Company purchased 20 percent of the outstanding shares of Temp Company for $70,000 on January 1, 20X6. The following results are reported for Temp Company:
| 20X6 | 20X7 | 20X8 |
Net income | $40,000 | $35,000 | $60,000 |
Dividends paid | 15,000 | 30,000 | 20,000 |
Fair value of shares held by Gant: |
|
|
|
January 1 | 70,000 | 89,000 | 86,000 |
December 31 | 89,000 | 86,000 | 97,000 |
Required
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming Gant uses the following methods in accounting for its investment in Temp:
a. Cost method.
b. Equity method
c. Fair value method.
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