Small Company reported 2017 net income of $300,000 and paid dividends of $90,000
ID: 2545468 • Letter: S
Question
Small Company reported 2017 net income of $300,000 and paid dividends of $90,000 during the year. Parker Inc. acquired 20% of Small's outstanding voting stock on January 1, 2017 for $630,000. At December 31, 2017, Parker determined the fair value of the shares in small to be $615,000. Parker reported operating income of $540,000.
instructions: Compute Parker's net income for 2017 assuming it uses the following methods to account for its investment.
a. equity method in accounting for its investment in Small
b. fair value method in accounting for its investment in Small
Explanation / Answer
a. Journal
Calculation of Net Income
b. Journal
Calculation of Net Income
No. Account Name Debit Credit 1. Investment in Small Company $630000 Cash $630000 (To record investment made) 2. Investment in Small Company ($300000 x 20%) 60000 Equity income in Small Company 60000 (To record equity income in associate) 3. Cash ($90000 x 20%) 18000 Investment in Small Company 18000 (To record dividend income of associate) 4. Realized loss (630000-615000) 15000 Investment in Small Company 15000 (To record permanent decline in fair market value)Related Questions
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