Eileen, Inc., purchased 10 percent of Bravo Corporation on January 1, 2023, for $345,000 and accounted for the investment using the fair-value method. Eileen acquires an additional 15 percent of Bravo on January 1, 2024, for $585,000. The equity method of accounting is now appropriate for this investment. No intra-entity sales have occurred.

a. How does Eileen determine the income to be reported in 2023 in connection with its ownership of Bravo?

b. What factors should have influenced Eileen in its decision to apply the equity method in 2024?

c. What factors could have prevented Eileen from adopting the equity method after this second purchase?

d. What is the objective of the equity method of accounting?

e. What criticisms have been leveled at the equity method?

f. In Eileen’s 2024 income statement, how is the income from its investment in Bravo determined? Why is this accounting appropriate?

g. How is the allocation of Eileen’s acquisition made?

h. If Bravo declares a cash dividend in 2024, what impact does it have on Eileen’s financial records under the equity method? Why is this accounting appropriate?

i. Assume the January 1, 2024 fair value of Eileen’s original 10 percent investment in Bravo equals $390,000. On financial statements for 2024, how should Eileen determine the balance of its Investment in Bravo account?