On January 1, 2012, Sheena Company purchased 30 percent of the outstanding common stock of Maryn Corporation

Question:

On January 1, 2012, Sheena Company purchased 30 percent of the outstanding common stock of Maryn Corporation at a total cost of $660,000. Management intends to hold the stock for the long term. On the December 31, 2012, balance sheet, the investment in Maryn Corporation was $780,000, but no additional Maryn stock was purchased. The company received $120,000 in cash dividends from Maryn. The dividends were declared and paid during 2012. The company used the equity method to account for its investment in Maryn. The market price of Sheena Company’s share of Maryn stock increased during 2012 to a total value of $750,000.

Required:

1. Explain why the investment account balance increased from $660,000 to $780,000 during 2012.

2. What amount of revenue from the investment was reported during 2012?

3. If Sheena did not have significant influence over Maryn and used the fair value method, what amount of revenue from the investment should have been reported in 2012?

4. If Sheena did not have significant influence over Maryn and used the fair value method, what amount should be reported as the investment in Maryn Corporation on the December 31, 2012, balance sheet?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...