Farwell Company acquired 30% of the outstanding common stock of Ingold Inc. on January 1, 2014, by

Question:

Farwell Company acquired 30% of the outstanding common stock of Ingold Inc. on January 1, 2014, by paying $1,800,000 for 60,000 shares. Ingold declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2014. Ingold reported net income of $800,000 for the year.

Instructions

(a) Prepare the journal entries for Farwell Company for 2014, assuming Farwell cannot exercise significant influence over Ingold. (Use the cost method.)

(b) Prepare the journal entries for Farwell Company for 2014, assuming Farwell can exercise significant influence over Ingold. (Use the equity method.)

(c) The board of directors of Farwell Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2014.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...