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Homework 23 - P12-6 CASE A MUST USE MARKET VALUE METHOD The...

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P12-6 CASE A: MUST USE MARKET VALUE METHOD. The company owns only 10% of its total shares of outstanding common stock. CASE B: MUST USE EQUITY METHOD. The company owns 40% of total shares of its outstanding common stock. CASE A CASE B a. January 10 Stock Acq. Investment in SAS 200,000 Cash 200,000 Investment in AC 800,000 Cash 800,000 b. Net income of Ship Investment in AC NONE 120,000 Equity in Earnings of AC NONE 120,000 c. Dividends Paid Cash 6,000 Investment Income 6,000 Cash 24,000 Investment in AC 24,000 d. Year-End Valuation Net Unrealized Loss 20,000 NONE Allowance to Value 20,000 NONE a. Balance Sheet: Long-term Investments: Investment in SAS 180,000 Investment in AC 180,000 b. Stockholders’ Equity: Other Income: Net Unrealized Gain (20,000) c. Income Statement: Investment Income 6,000 Equity in Earnings of AC 120,000 Cost 200,000 – Allowance to Value 20,000 = $180,000 on balance sheet Cost 800,000 + % investees net income 120,000 - % investee’s dividends 24,000 = $ 896,00 on balance sheet The amounts reported are different because the two approaches used in recognizing investment revue and adjustments for changes in market value that are made only under
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