Conroy Financial paid $530,000 for a 20% investment in the common stock ofMaverick, Inc. For the first year, Maverick reported net income of $270,000, and at year-enddeclared and paid cash dividends of $115,000. On the balance-sheet date, the fair value of Conroy’s investment in Maverick stock was $410,000.Requirements1. Which method is appropriate for Conroy to use in its accounting for its investment inMaverick? Why?2. Show everything that Conroy would report for the investment and any investment revenuein its year-end financial statements.
Conroy Financial paid $530,000 for a 20% investment in the common stock ofMaverick, Inc. For the first year, Maverick reported net income of $270,000, and at year-enddeclared and paid cash dividends of $115,000. On the balance-sheet date, the fair value of Conroy’s investment in Maverick stock was $410,000.Requirements1. Which method is appropriate for Conroy to use in its accounting for its investment inMaverick? Why?2. Show everything that Conroy would report for the investment and any investment revenuein its year-end financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Conroy Financial paid $530,000 for a 20% investment in the common stock of
Maverick, Inc. For the first year, Maverick reported net income of $270,000, and at year-end
declared and paid cash dividends of $115,000. On the balance-sheet date, the fair value of Conroy’s investment in Maverick stock was $410,000.
Requirements
1. Which method is appropriate for Conroy to use in its accounting for its investment in
Maverick? Why?
2. Show everything that Conroy would report for the investment and any investment revenue
in its year-end financial statements.
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