Exam 1 Review
1. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for
the investment. During 2013, Dew reported income of $250,000 and paid dividends of $80,000. There is
no amortization associated with the investment. During 2013, how much income should Yaro recognize
related to this investment?
2. On January 1, 2013, Bangle Company purchased 30% of the voting common stock of Sleat Corp. for
$1,000,000. Any excess of cost over book value was assigned to goodwill. During 2013, Sleat paid
dividends of $24,000 and reported a net loss of $140,000. What is the balance in the investment account
on December 31, 2013?
3. On January 1, 2013, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account
for the investment. On January 1, 2014, Jordan sold two-thirds of its investment in Nico. It no longer had
the ability to exercise significant influence over the operations of Nico. How should Jordan have
accounted for this change?