On January 1, 2006 Snow Corporation purchased 20% of the 200,000 outstanding shares of common stock of

Question:

On January 1, 2006 Snow Corporation purchased 20% of the 200,000 outstanding shares of common stock of Garvey Company for $4.00 per share as a long-term investment. The purchase price of the shares was equal to their book value. The following information is available about Garvey Company for 2006 and 2007:

End of 2006 ...... Reported net income ........... $80,000

Cash dividends declared and paid .... $30,000

Market value of shares ........ $3.80 per share

End of 2007 Reported net income ......... $90,000

Cash dividends declared and paid .... $35,000

Market value of shares ........... $4.25 per share

Required

1. Prepare journal entries to record this information, assuming:

a. The fair value method is used by Snow

b. The equity method is used by Snow

2. Assume 10,000 of the Garvey shares are sold on January 4, 2008 by Snow for $4.25 per share. Prepare the journal entry for this sale, assuming:

a. Snow is using the fair value method

b. Snow is using the equity method

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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...