Potter Corporation owns equity-method investments in several companies. Suppose Potter paid $1,100,000 to acquire a 30% investment

Question:

Potter owns equity-method investments in several companies. Suppose Potter paid $1,100,000 to acquire a 30% investment in Faulk Software Company. Faulk Software reported net income of $660,000 for the first year and declared and paid cash dividends of $400,000.

Requirements
1. Record the following in Potter’s journal:
(a) Purchase of the investment,
(b) Potter’s proportion of Faulk Software’s net income, and
(c) Receipt of the cash dividends.
2. What is the ending balance in Potter’s investment account?

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...