Question: On January 1 Rurk Corporation purchased as long term investments 8
On January 1, Rurk Corporation purchased, as long-term investments, 8 percent of the voting stock of Star Corporation for $1,000,000 and 45 percent of the voting stock of Mit Corporation for $8,000,000. During the year, Star had earnings of $400,000 and paid dividends of $160,000. Mit Corporation had earnings of $1,200,000 and paid dividends of $800,000. The market value did not change for either investment during the year. Which of these investments should be accounted for using the cost-adjusted-to-market method? Which should be accounted for using the equity method? At what amount should each investment be carried on the balance sheet at year-end? Give a reason for each choice.
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