On 1/1/2014, Phillip incorporation invested $650,000 in Shelter incorporation (1

Question

On 1/1/2014, Phillip incorporation invested $650,000 in Shelter incorporation (100% owned). For 2014, Shelter incorporation:

            (1) Earned $90,000,

            (2) Declared dividends of $60,000, and

            (3) Paid dividends of $40,000.

What amounts does Phillip incorporation report for the following?

                                                                          Cost Method                                    Equity method

Investment income for 2014                       ____________                                   ___________

Investment in Shelter Inc. at year-end       ____________                                  ___________

Retained earnings increase                           ____________                                   ___________

Explanation / Answer

Ans:

                                                            Cost Method                                    Equity method

Investment income for 2014                   $90000                             NIL

Investment in Shelter Inc. at year-end       $ 700000(650000+90000-40000)              $ 650000                 

Retained earnings increase                         NIL                                     $ 90000

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