Question

Star Electronics, Inc., acquired 25% of the voting stock of Mobile Media for $75 million cash. In year 1, Mobile Media had a net income of $48 million and paid a cash dividend of $28 million. The investment had a market value of $81 million at the end of the year.
1. Using the equity method, show the effects of the three transactions—acquisition and Mobile Media’s net income and cash dividend—on the accounts of Star Electronics. Use the balance-sheet-equation format.
2. Assume that Star Electronics could use the market-value method for this investment and that it classified the investment as an available-for-sale security. Show the effects of the three transactions on the accounts of Star Electronics. Use the balance-sheet-equation format.



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  • CreatedNovember 19, 2014
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