Star Electronics, Inc , acquired 25 of the voting stock of Mobile Media for $75 million cash In year1, Mobile Media had a net income of $48 million and paid a cash dividend of $28 million The investment had a market value of $81 million at the end of the year 1 Using the equity method, show the eff...

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Star Electronics, Inc., acquired 25% of the voting stock of Mobile Media for $75 million cash. In

Question:

Star Electronics, Inc., acquired 25% of the voting stock of Mobile Media for $75 million cash. In year 1, Mobile Media had a net income of $48 million and paid a cash of $28 million. The investment had a market value of $81 million at the end of the year.
1. Using the equity method, show the effects of the three transactions—acquisition and Mobile Media’s net income and cash dividend—on the accounts of Star Electronics. Use the balance-sheet-equation format.
2. Assume that Star Electronics could use the market-value method for this investment and that it classified the investment as an available-for-sale security. Show the effects of the three transactions on the accounts of Star Electronics. Use the balance-sheet-equation format.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...