Russell Financial paid $480,000 for a 35% investment in the common stock of Timberwood, Inc. For the

Question:

Russell Financial paid $480,000 for a 35% investment in the common stock of Timberwood, Inc. For the first year, Timberwood reported net income of $185,000 and at year-end declared and paid cash dividends of $95,000. On the balance-sheet date, the fair value of Russell’s investment in Timberwood stock was $390,000.

Requirements

1. Which method is appropriate for Russell Financial to use in accounting for its investment in Timberwood, Inc.? Why?

2. Show everything that Russell would report for the investment and any investment revenue in its year-end financial statements.

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...