Window Help Help Save & Exit Submit Check my work Small Company reported 20X7 ne

Question

Window Help Help Save & Exit Submit Check my work Small Company reported 20X7 net income of $53,000 and paid dividends of $12,000 during the year Mock Corporation acquired 20 percent of Small's shares on January 1, 20X7, for $106,000. At December 31, 20x7, Mock determined the fair value of the shares of Small to be $129,000. Mock reported operating income of $81,000 for 20X7 Required: Compute Mock's net income for 20X7 assuming it a Carries the investment in Small at fair value. b Uses the equity method of accounting for its investment in Small. a Net income (fair value method) Net income (equity method)

Explanation / Answer

a)Increase in fair value = fair value --book value

              = 129000 - 106000

              = 23000

mock net income = operating income+ increase in fair value

              = 81000 +23000

               = $ 104000

b)under equity method ,share in net income of affilates increases the value of investment and dividend received reduces the investment so there is no eefect on net income .

Mock net income = $ 81000

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