On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively.
1. Based on the preceding information, what amount will be reported by Yang as income from its investment in Spiel for 20X8, if it used the equity method of accounting?
a) $7,500
b) $11,250
c) $18,750
d) $26,250
2. Based on the preceding information, what amount will be reported by Yang as balance in investment in Spiel on December 31, 20X8, if it used the equity method of accounting?
a) $108,250
b) $118,750
c) $100,000
d) $122,500
3. Based on the preceding information, what amount will be reported by Yang as income from its investment in Spiel for 20X7 if it used the fair value option to account for its investment in Spiel?
a) $17,500
b) $12,500
c) $11,250
d) $7,500