Fairbanks Outdoor Equipment acquired 25% of the voting stock of Bearpaw Snowshoes for $60 million cash. In

Question:

Fairbanks Outdoor Equipment acquired 25% of the voting stock of Bearpaw Snowshoes for $60 million cash. In year 1, Bearpaw had a net income of $32 million and paid a cash dividend of $12 million.

1. Using the equity and the market methods, show the effects of the three transactions on the accounts of Fairbanks Outdoor Equipment. Use the balance sheet equation format. Also show the corresponding journal entries. Assume constant market value for Bearpaw.

2. Which method, equity or market, would Fairbanks use to account for its investment in Bearpaw? Explain.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...