Suppose Google acquired one-third of the common shares of Chang Web Design for $50 million cash. In year 1, Chang had a net income of $30 million and paid cash dividends of $9 million. At the end of the year, the market value of the investment had fallen to $39 million. Prepare a tabulation that compares the equity method and the market-value method of accounting for Google’s investment in Chang. Show the effects on the balance sheet equation under each method. (Assume that under the market-value method this investment is a trading security.) What is the year-end balance in the Investment in Chang account under the equity method? Under the market-value method? Which method should Google use for reporting its investment in Chang?
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