Ravine Corporation purchased $30$ percent ownership of Valley Industries for $$91,500$ on January $1,20$X$6,$ when Valley had capital stock of $$251,000$ and retained earnings of $$54,000.$ During the period of January $1,20$X$6,$ through December $31,20$X$9,$ the market value of Ravine's investment in Valley's stock increased by $$10,000$ each year. The following data were reported by the companies for the years $20$X$6$ through $20$X$9$:

Year Operating Income, Ravine Corporation Net Income, Valley Industries Dividends Declared

Ravine Valley

$20$X$6$ $ $145,000$ $ $39,000$ $ $76,000$ $ $29,000$

$20$X$791,00059,00076,00049,000$

$20$X$8239,00010,00096,00040,000$

$20$X$9165,00049,000106,00029,000$

Required:

a$.$ What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment either by carrying the investment at fair value, or by using the equity method?

b$-1.$ Give all appropriate journal entries for $20$X$8$ that Ravine would make if it carries the investment at fair value.

b$-2.$ Give all appropriate journal entries for $20$X$8$ that Ravine would make if it uses the equity method.

Answer rating: 100% (QA)

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