Ravine Corporation purchased 40 percent ownership of Valley Industries for $116,400 on January 1, 20X6, when Valley had capital stock of $242,000 and retained earnings of $49,000. During the period of January 1, 20X6, through December 31, 20X9, the market value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for the years 20X6 through 20X9: Year 20X6 20X7 20X8 20x9 Operating Income, Ravine Corporation $159,000 97,000 225,000 179,000 Net Income, Valley Industries $39,000 59,000 10,000 49,000 Dividends Declared Ravine $ 84,000 84,000 104,000 114,000 Valley $29,000 49,000 40,000 29,000 Required: a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment either by carrying the investment at fair value, or by using the equity method? b-1. Give all appropriate journal entries for 20X8 that Ravine would make if it carries the investment at fair value. b-2. Give all appropriate journal entries for 20X8 that Ravine would make if it uses the equity method.
Ravine Corporation purchased 40 percent ownership of Valley Industries for $116,400 on January 1, 20X6, when Valley had capital stock of $242,000 and retained earnings of $49,000. During the period of January 1, 20X6, through December 31, 20X9, the market value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for the years 20X6 through 20X9: Year 20X6 20X7 20X8 20x9 Operating Income, Ravine Corporation $159,000 97,000 225,000 179,000 Net Income, Valley Industries $39,000 59,000 10,000 49,000 Dividends Declared Ravine $ 84,000 84,000 104,000 114,000 Valley $29,000 49,000 40,000 29,000 Required: a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment either by carrying the investment at fair value, or by using the equity method? b-1. Give all appropriate journal entries for 20X8 that Ravine would make if it carries the investment at fair value. b-2. Give all appropriate journal entries for 20X8 that Ravine would make if it uses the equity method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required A Required B1 Required B2
What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the
intercorporate investment either by carrying the investment at fair value, or by using the equity method?
Year
20X6
20X7
20X8
20X9
Net Income
Fair Value Equity Method
< Required A
Required B1 >
Transcribed Image Text:Ravine Corporation purchased 40 percent ownership of Valley Industries for $116,400 on January 1, 20X6, when Valley had capital
stock of $242,000 and retained earnings of $49,000. During the period of January 1, 20X6, through December 31, 20X9, the market
value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for
the years 20X6 through 20X9:
Year
20X6
20X7
20X8
20X9
Operating Income,
Ravine Corporation
$159,000
97,000
225,000
179,000
Net Income,
Valley Industries
$39,000
59,000
10,000
49,000
Dividends Declared
Ravine
$ 84,000
84,000
104,000
114,000
Valley
$29,000
49,000
40,000
29,000
Required:
a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate
investment either by carrying the investment at fair value, or by using the equity method?
b-1. Give all appropriate journal entries for 20X8 that Ravine would make if it carries the investment at fair value.
b-2. Give all appropriate journal entries for 20X8 that Ravine would make if it uses the equity method.
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