Farwell Company acquired 30% of the outstanding common stock of Ingold Inc. on J
ID: 2768226 • Letter: F
Question
Farwell Company acquired 30% of the outstanding common stock of Ingold Inc. on January 1, 2014, by paying $1,800,000 for 60,000 shares. Ingold declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2014. Ingold reported net income of $800,000 for the year.
The board of directors of Farwell Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2014.
Cost Method EquityMethod
Stock investments $ $
*Dividend revenue $ $
Revenue from stock investments
**
Please respond to at least two of your peers' posts, evaluating their opinion and including any details or additional information that you believe should be part of their work.
(c)The board of directors of Farwell Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2014.
Cost Method EquityMethod
Stock investments $ $
*Dividend revenue $ $
Revenue from stock investments
**
Explanation / Answer
Account balances under each method at December 31, 2014
Cost Method
EquityMethod
Stock investments
1800000
1800000
*Dividend revenue
60000
60000
(60000 Shares * $0.50)*2
Revenue from stock investments
240000
(800000*30%)
Account balances under each method at December 31, 2014
Cost Method
EquityMethod
Stock investments
1800000
1800000
*Dividend revenue
60000
60000
(60000 Shares * $0.50)*2
Revenue from stock investments
240000
(800000*30%)
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