Accounting for Investments in Equity Securities}

On January 1, 2018, Stern Corporation purchased 100 common shares issued by Milstein Inc. (representing \(12 \%\) of the total shares outstanding) for \(\$ 6,000\) and 500 shares of Heifetz Inc. (representing \(25 \%\) of the total shares outstanding) for \(\$ 20,000\). Assume that the acquisition cost of each investment equals the book value of the related shareholders' equity on the records of the investee. During 2018, Milstein declared and paid cash dividends to Stern of \(\$ 500\) and Heifetz declared and paid cash.dividends to Stern of \(\$ 1,700\). Milstein reported 2018 net income of \(\$ 12,000\) and Heifetz reported 2018 net income of \(\$ 15,000\). On December 31, 2018, the market value of 100 shares of Milstein was \(\$ 6,450\) and the market value of 500 shares of Heifetz was \(\$ 19,720\).

Required:

Answer the following questions for both investments.

\section*{Exercise

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1. Which accounting method is applicable? 2. What amount is recorded in the investment account on the date of acquisition? 3. What amount is recorded in Stern's net income from the investments? 4. What amount is reported for the investments on the statement of financial position of Stern at December 31, 2018? Milstein Heifetz