Spritz Company owns 15% of the stock of Turner Corporation. The investment was purchased for $200,000. At the beginning of
Spritz Company owns 15% of the stock of Turner Corporation. The investment was purchased for $200,000. At the beginning of the current year, the investment had a fair value of $230,000. At the end of the year, its fair value is $250,000. Turner reported a net income of $100,000 for the year and declared and paid cash dividends of $60,000. Spritz sells products to Turner at a markup of 20% on cost. Turner’s ending inventory for the year included a balance of $10,800 for products purchased from Spritz. Turner’s beginning inventory included no products purchased from Spritz. Prepare the journal entries Spritz makes during the year to record the above facts, assuming:
a. Spritz treats its investment as an equity investment with no significant influence.
b. Spritz treats its investment as having significant influence and uses the equity method.