Question: (Learning Objective 2: Accounting for transactions under the equity method) Watson Corporation owns equity-method investments in several companies. Suppose Watson paid 1,200,000 to acquire a

(Learning Objective 2: Accounting for transactions under the equity method)

Watson Corporation owns equity-method investments in several companies. Suppose Watson paid €1,200,000 to acquire a 35% investment in Smith Software Company. Smith Software reported net income of €650,000 for the fi rst year and declared and paid cash dividends of

€440,000.

❙ Requirements 1. Record the following in Watson’s journal:

(a) purchase of the investment,

(b) Watson’s proportion of Smith Software’s net income, and

(c) receipt of the cash dividends.

2. What is the ending balance in Watson’s investment account?

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