On January 1, 2011, Woodrow Company purchased 30 percent of the outstanding common stock of Trevor Corporation

Question:

On January 1, 2011, Woodrow Company purchased 30 percent of the outstanding of Trevor at a total cost of $560,000. Management intends to hold the stock for the long term. On the December 31, 2011, balance sheet, the investment in Trevor was $720,000, but no additional Trevor stock was purchased. The company received $80,000 in cash dividends from Trevor. The dividends were declared and paid during 2011. The company used the equity method to account for its investment in Trevor. The market price of Trevor stock increased during 2011 to a total value of $600,000.

Required:
1. Explain why the investment account balance increased from $560,000 to $720,000 during 2011.
2. What amount of revenue from the investment was reported during 2011?
3. If Woodrow did not have significant influence over Trevor and used the market value method, what amount of revenue from the investment should have been reported in 2011?
4. If Woodrow did not have significant influence over Trevor and used the market value method, what amount should be reported as the investment in Trevor on the December 31, 2011, balance sheet?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...