Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 85 E2-4 Carrying an Investment at Fair Value versus Equity Method Reporting Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. During the period of January 1, 20X2, through December 31, 20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each year. The companies reported the following operating results and dividend payments during the first three years of intercorporate ownership: Year 20X2 20X3 20X4 Winston Corporation Operating Income $100,000 60,000 250,000 Dividends $ 40,000 80,000 120,000 Fullbright Company Net Income $70,000 40,000 25,000 Dividends $30,000 60,000 50,000 Required Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright by (a) carrying the investment at fair value, or (b) using the equity method.

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Chapter1: Financial Statements And Business Decisions
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(a) carrying the investment at FAIR VALUE

 

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Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 85
E2-4 Carrying an Investment at Fair Value versus Equity Method Reporting
Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1,
20X2, at underlying book value. During the period of January 1, 20X2, through December 31,
20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each
year. The companies reported the following operating results and dividend payments during the
first three years of intercorporate ownership:
Year
20X2
20X3
20X4
Winston Corporation
Operating Income
$100,000
60,000
250,000
Dividends
$ 40,000
80,000
120,000
Fullbright Company
Net Income
$70,000
40,000
25,000
Dividends
$30,000
60,000
50,000
Required
Compute the net income reported by Winston for each of the three years, assuming it accounts for its
investment in Fullbright by (a) carrying the investment at fair value, or (b) using the equity method.
Transcribed Image Text:Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 85 E2-4 Carrying an Investment at Fair Value versus Equity Method Reporting Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. During the period of January 1, 20X2, through December 31, 20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each year. The companies reported the following operating results and dividend payments during the first three years of intercorporate ownership: Year 20X2 20X3 20X4 Winston Corporation Operating Income $100,000 60,000 250,000 Dividends $ 40,000 80,000 120,000 Fullbright Company Net Income $70,000 40,000 25,000 Dividends $30,000 60,000 50,000 Required Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright by (a) carrying the investment at fair value, or (b) using the equity method.
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