On January 1, 2012, Pay Corporation purchased 90% of Sal  Company's stock for $118,000. During the next five years, Sal had the following income and dividends paid:

Year	Income	Dividends
2012	$10,000	0
2013	$10,000	0
2014	$5,000	0
2015	$5,000	0
2016	$71,250	60,000

Required:

Prepare the book entries made under the COST METHOD and the EQUITY METHOD and then compute the ending balance in the "investment" account under both methods.

Answer rating: 100% (QA)

Under the cost method the investment is recorded at its original cost of 118000 and no adjustment is ... View the full answer