Assume the same facts as for Question 1 above. The fair value of the investment in Company
Question:
Assume the same facts as for Question 1 above. The fair value of the investment in Company E is $220,000 on December 31, 2015. Answer the following questions assuming the investment is recorded using the fair value option:
a. What is Company R’s investment income for 2015?
b. What is Company R’s investment balance on December 31, 2015?
c. Explain in words the investment balance on December 31, 2015.
Data From Question 1:
Company R pays $170,000 for a 30% interest in Company E on January 1, 2015. Company E’s total stockholders’ equity on that date is $500,000. The excess price is attributed to equipment with a 5-year life. During 2015, Company E reports net income of $35,000 and pays total dividends of $10,000. Answer the following questions assuming the investment is recorded under the equity method:
a. What is Company R’s investment income for 2015?
b. What is Company R’s investment balance on December 31, 2015?
c. Explain, in words, the investment balance on December 31, 2015.
Step by Step Answer:
Advanced Accounting
ISBN: 978-1305084858
12th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng