Question

On January 1, 2014, Woodrow Company purchased 30 percent of the outstanding common shares of Trevor Corporation at a total cost of $ 560,000. Management intends to hold the stock for the long term. The investment in Trevor Corporation was reported at $ 720,000 on the statement of financial position at December 31, 2014. No additional Trevor shares were purchased during the year. The company received $ 80,000 in cash dividends that were declared and paid by Trevor during 2014. The company used the equity method to account for its investment in Trevor. The market price of Trevor’s shares increased during 2014 to a total value of $ 600,000.
Required:
1. Explain why the investment account balance increased from $ 560,000 to $ 720,000 during 2014.
2. What amount of revenue from the investment was reported during 2014?
3. If Woodrow did not have significant influence over Trevor and used the fair value method, what amount of revenue from the investment should have been reported in 2014?
4. If Woodrow did not have significant influence over Trevor and used the fair value method, what amount should be reported as the investment in Trevor Corporation on the statement of financial position at December 31, 2014?


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  • CreatedAugust 04, 2015
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