On January 1, 2014, Garr Company purchased 5,000 shares of Cey Company stock for

Question

On January 1, 2014, Garr Company purchased 5,000 shares of Cey Company stock for $300,000. Garr investment represents 30 percent of the total outstanding shares of Cey. During 2014, Cey paid total dividends of $100,000 and reported net income of $300,000.

Under the equity method:

1. What revenue does Garr report related to this investment for 2014? (Show any calculations)

2. What is the amount to be reported as an investment in Cey stock at December 31, 2014. (Show any calculations)

At January 1, 2014, the available-for-sale securities portfolio held by Darin Corporation consisted of the following investments:

1. 2,500 shares of Hacker common stock purchased for $42 per share.

2. 1,500 shares of Kramer common stock purchased for $50 per share.

At December 31, 2014, the fair values per share were Hacker $36 and Kramer $54.

Required:

1. Prepare a schedule showing the cost and fair value of the available-for-sale investment portfolio at December 31, 2014.

2. Prepare the adjusting entry to report the investment portfolio at fair value at December 31, 2014.

Explanation / Answer

Since they purchased 30% of the stock Garr Company has significant influence of Cey Company. The equity method should be used.

Net income for Cey Company is treated as net income for Garr Company and also added to the amount of the investment. .
Dividends are subtracted from the balance of the investment.

300,000 x 30% = $90,000 revenue for Garr
300,000 + 90,000 - (100,000 x 30%) = $360,000 reported investment

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