On January 1, 2007, Monroe, Inc., purchased 10,000 shares of Brown Company for $250,000, giv ing Monroe
Question:
On January 1, 2007, Monroe, Inc., purchased 10,000 shares of Brown Company for $250,000, giv¬ ing Monroe 10 percent ownership of Brown. On January 1,2008, Monroe purchased an additional 20,000 shares (20 percent) for $590,000. This latest purchase gave Monroe the ability to apply sig¬ nificant influence over Brown. Assume that no goodwill is involved in either acquisition and the original 10 percent investment was categorized as an available-for-sale security.
Brown reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years.
Cash Dividends Net Income
(paid quarterly)
2007
$350,000
$100,000 2008 480,000 110,000 2009 500,000 120,000 On July 1,2009, Monroe sells 2,000 shares of this investment for $46 per share, thus reducing its interest from 30 to 28 percent. However, the company retains the ability to significantly influence Brown. Using the equity method, what amounts appear in Monroe’s 2009 income statement?
Step by Step Answer:
Advanced Accounting
ISBN: 9780073379456
9th Edition
Authors: Joe Ben Hoyle, Timothy S. Doupnik, Thomas F. Schaefer, Oe Ben Hoyle