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c. Indicate the amount of income that would be reported on the 2020 income statement and the investment balance on the 2020 year-end balance: under requirement (a) and requirement (b). Income Investment Net Balance 2020 Dec. 31, 2020 a. Investment accounted for under the equity method $ 18,000 v $ 406,500 x b. Investment measured at FV-NI 18,000 x 67,500 x Check

c. Indicate the amount of income that would be reported on the 2020 income statement and the investment balance on the 2020 year-end balance: under requirement (a) and requirement (b). Income Investment Net Balance 2020 Dec. 31, 2020 a. Investment accounted for under the equity method $ 18,000 v $ 406,500 x b. Investment measured at FV-NI 18,000 x 67,500 x Check

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I got the first two parts, but could you explain to me how to find part C?

Recording Entries for Equity Investment: FV-NI and Equity Method On January 1, 2020, Allen Corporation purchased 30% of the 75,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $60,000 and declared and paid dividends of $20,000. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. Journal Entries with Significant Influence Journal Entries without Significant Influence Financial Statement Presentation a. Assume that Allen Corporation had significant influence over Towne Corporation. Prepare the entries for 2020 to record the purchase of the investment, the receipt of declared dividends, and the proportionate share of net income. Date Account Name Dr. Cr. Jan. 1, 2020 Investment in Stock 382,500 Cash 382,500 To record investment purchase. 2020 Cash 6,000 Investment in Stock 6,000 To record receipt of dividends. Dec. 31, 2020 Investment in Stock 18,000 Investment Income 18,000 To record proportionate share of investee's net income. Check >
Transcribed Image Text:Recording Entries for Equity Investment: FV-NI and Equity Method On January 1, 2020, Allen Corporation purchased 30% of the 75,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $60,000 and declared and paid dividends of $20,000. As of December 31, 2020, common shares of Towne Corporation were trading at $20 per share. Journal Entries with Significant Influence Journal Entries without Significant Influence Financial Statement Presentation a. Assume that Allen Corporation had significant influence over Towne Corporation. Prepare the entries for 2020 to record the purchase of the investment, the receipt of declared dividends, and the proportionate share of net income. Date Account Name Dr. Cr. Jan. 1, 2020 Investment in Stock 382,500 Cash 382,500 To record investment purchase. 2020 Cash 6,000 Investment in Stock 6,000 To record receipt of dividends. Dec. 31, 2020 Investment in Stock 18,000 Investment Income 18,000 To record proportionate share of investee's net income. Check >
b. Assume that Allen Corporation did not have significant influence over Towne Corporation. Record the entries in 2020 to record the purchase of the investment, the receipt of declared dividends, and the fair value adjustment. Date Account Name Dr. Cr. Jan. 1, 2020 Investment in Stock 382,500 Cash 382,500 To record investment purchase. 2020 Cash 6,000 Dividend Revenue 6,000 To record receipt of dividends. Dec. 31, 2020 Fair Value Adjustment--Equity Securities 67,500 Unrealized Gain or Loss--Income 67,500 To adjust investment to fair value. Check c. Indicate the amount of income that would be reported on the 2020 income statement and the investment balance on the 2020 year-end balance sheet under requirement (a) and requirement (b). Income Investment Net Balance 2020 Dec. 31, 2020 a. Investment accounted for under the equity method $ 18,000 406,500 x b. Investment measured at FV-NI 18,000 x 67,500 x Check
Transcribed Image Text:b. Assume that Allen Corporation did not have significant influence over Towne Corporation. Record the entries in 2020 to record the purchase of the investment, the receipt of declared dividends, and the fair value adjustment. Date Account Name Dr. Cr. Jan. 1, 2020 Investment in Stock 382,500 Cash 382,500 To record investment purchase. 2020 Cash 6,000 Dividend Revenue 6,000 To record receipt of dividends. Dec. 31, 2020 Fair Value Adjustment--Equity Securities 67,500 Unrealized Gain or Loss--Income 67,500 To adjust investment to fair value. Check c. Indicate the amount of income that would be reported on the 2020 income statement and the investment balance on the 2020 year-end balance sheet under requirement (a) and requirement (b). Income Investment Net Balance 2020 Dec. 31, 2020 a. Investment accounted for under the equity method $ 18,000 406,500 x b. Investment measured at FV-NI 18,000 x 67,500 x Check
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