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Gant Company purchased 20 percent of the outstanding shares of Temp Company for $78,000 on January...

Gant Company purchased 20 percent of the outstanding shares of Temp Company for $78,000 on January 1, 20X6. The following results are reported for Temp Company:
  

20X6 20X7 20X8
Net income $ 48,000 $ 43,000 $ 58,000
Dividends paid 13,000 29,000 18,000
Fair value of shares held by Gant:
January 1 78,000 97,000 94,000
December 31 97,000 94,000 105,000

  
Required:
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming that Gant uses the following options in accounting for its investment in Temp:
  

  1. Uses the equity method.

Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming that Gant uses the equity method in accounting for its investment in Temp.
20X6 20X7 20X8
Income from investment $9,600 $8,600 $11,600
Balance in investment $85,000 HELP!   HELP!

Solutions

Expert Solution

Answer:

Equity Method:

Recognition oon income under equity method:

Particulars 20X6 20X7 20X8
Income (A) 48000 43000 58000
Investment share (B) 20% 20% 20%
Income (AxB) 9600 8600 11600

Calculate the balance of investment in Temp Company:

Particulars 20X6 20X7 20X8
Investment 78000 97000 94000
Add: Income 9600 8600 11600
Investment share 20% 20% 20%
Less: Dividend x 20% (2600) (5800) (3600)
Total investment 85000 99800 102000

ekkarill92 answered 2 years ago
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