Question: Kappa Company acquired 20 of the voting stock of Omega

Kappa Company acquired 20% of the voting stock of Omega Company for $40 million cash. In year 1, Omega had a net income of $20 million and paid cash dividends of $10 million. At the end of the year, the total market value of Omega Company was $240 million. Prepare a tabulation that compares the equity method and the market-value method of accounting for Kappa’s investment in Omega. Show the effects on the balance sheet equation under each method. What is the year-end balance in the Investment in Omega account under the equity method? Under the market-value method?
What difference in accounting would there be if the investment were a trading security instead of an available-for-sale security?

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  • CreatedNovember 19, 2014
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