Question
In: Accounting
Phillips Company bought 40 percent ownership in Jones Bag Company on January 1, 20X1, at underlying...
Phillips Company bought 40 percent ownership in Jones Bag
Company on January 1, 20X1, at underlying book value. During the
period of January 1, 20X1, through December 31, 20X3, the market
value of Phillips' investment in Jones' stock increased by $2,000
each year. In 20X1, 20X2, and 20X3, Jones Bag reported the
following:
| Year | Net Income | Dividends | ||||||
| 20X1 | $ | 8,000 | $ | 15,000 | ||||
| 20X2 | 12,000 | 10,000 | ||||||
| 20X3 | 20,000 | 10,000 | ||||||
The balance in Phillips Company’s investment account on December
31, 20X3, was $54,000.
Required:
In each of the following independent cases, determine the amount
that Phillips paid for its investment in Jones Bag stock assuming
that Phillips accounted for its investment by carrying the
investment at fair value, or using the equity method.
|
|||||||
Solutions
Expert Solution
| Change in Investment account | |||||||||
| Share of 40% | |||||||||
| Net Income N | Dividend declared D | Net Income 40%*N | Dividend 40% *D | Differnce | |||||
| 20x1 | $ 8,000 | $ 15,000 | $3,200 | $6,000 | ($2,800) | ||||
| 20X2 | $ 12,000 | $ 10,000 | $4,800 | $4,000 | $800 | ||||
| 20X3 | $ 20,000 | $ 10,000 | $8,000 | $4,000 | $4,000 | ||||
| Total | $2,000 | ||||||||
| Ans a Cost method= $54000+2800 | $ 56,800 | ||||||||
| Ans b Equity method= $54000-2000 | $ 52,000 | ||||||||
ekkarill92 answered 2 months agoRelated Solutions
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