Kingman Financial paid $590,000 for a 30% investment in the common stock of Cavalier, Inc. For the first year, Cavalier reported net income of $240,000, and at year-end declared and paid cash dividends of $110,000. On the balance-sheet date, the fair value of Kingman’s investment in Cavalier stock was $390,000.

Requirements

1. Which method is appropriate for Kingman to use in accounting for its investment in Cavalier? Why?

2. Show everything that Kingman would report for the investment and any investment revenue in its year-end financial statements.