Cost versus Equity Reporting
Roller Corporation purchased 100 percent ownership of Steam Company on January 1, 20X5, for $270,000. On that date, the book value of Steam’s reported net assets was $200,000. The excess over book value paid is attributable to depreciable assets with a remaining useful life of 10 years. Net income and dividend payments of Steam in the following periods were
Year | Net Income | Dividends |
20X5 | $20,000 | $ 5,000 |
20X6 | 40,000 | 15,000 |
20X7 | 20,000 | 35,000 |
Required
Prepare journal entries on Roller Corporation’s books relating to its investment in Steam Company for each of the three years, assuming it accounts for the investment using (a) the cost method and (b) the equity-method.
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