On January 1, 20X1, ABC Limited purchased 90% of the outstanding common shares of XYZ Limited for $ 150,000. At that date, XYZ Limited€™s condensed statement of financial position and fair values were as follows:

Assume a 10-year amortization period for any capital assets.

Required
1. Assume the following information regarding net income and dividends for XYZ Limited:

Calculate the balance in the investment account in ABC€™s books at the end of 20X5 assuming that ABC uses the equity method of accounting in its books.
2. Assume that ABC uses the cost method of accounting for its investment. Prepare a journal entry or entries to reflect the information previously provided for 20X4 and20X5.

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Cash Land Building (net) Carrying value 20,000 40,000 40,000 $100,000 Fair value $20,000 60,000 Liabilities Common shares Retained eamings 20,000 20,000 60,000 $100,000 Year 20X1 20X2 20X3 Net Income $20,000 24,000 18,000 (20,000) 20,000 Dividends $4,000 4,000 4,000 4,000* 52,000 20X5 The 20X4 dividend was a stock dividend.