The stock investment has always been accounted for using the cost method on his fi rm’s books. However, early in 2019 he decided to take his company public. He is preparing an IPO (initial public offering), and he needs to have the fi rm’s financial statements audited. One of the issues to be resolved is to restate the stock investment in LifePath Fitness using the equity method since Mr. Hansen’s ownership percentage is greater than 20%. Instructions (e) (1) Give the entries that would have been made on Hansen’s books if the equity method of accounting for investments had been used from the initial investment through 2018. Assume the following data for LifePath. 2016 2017 2018 Net income $30,000 $70,000 $105,000 Total cash dividends $2,100 $20,000 $50,000 (2) Compute the balance in the Stock Investment account (as it relates to LifePath Fitness) at the end of 2018.
The stock investment has always been accounted for using the cost method on his fi rm’s books. However, early in 2019 he decided to take his company public. He is preparing an IPO (initial public offering), and he needs to have the fi rm’s financial statements audited. One of the issues to be resolved is to restate the stock investment in LifePath Fitness using the equity method since Mr. Hansen’s ownership percentage is greater than 20%.
Instructions
(e) (1) Give the entries that would have been made on Hansen’s books if the equity method of accounting for investments had been used from the initial investment through 2018. Assume the following
data for LifePath.
2016
2017
2018
Net income
$30,000
$70,000
$105,000
Total cash dividends
$2,100
$20,000
$50,000
(2) Compute the balance in the Stock Investment account (as it relates to LifePath Fitness) at the
end of 2018.
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