Wilcox Financial paid $530,000 for a 45% investment in the common stock of Hornet, Inc. For the

Question:

Wilcox Financial paid $530,000 for a 45% investment in the of Hornet, Inc. For the first year, Hornet reported net income of $240,000 and at year-end declared and paid cash dividends of $125,000. On the balance-sheet date, the fair value of Wilcox’s investment in Hornet stock was $420,000.

Requirements
1. Which method is appropriate for Wilcox Financial to use in its accounting for its investment in Hornet? Why?
2. Show everything that Wilcox 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...