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1. On April 1, 2018, GMR Company purchased 30% of the outstanding voting stock of the Victory Corporation for Dh960,000. Victory's net assets on April

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1. On April 1, 2018, GMR Company purchased 30% of the outstanding voting stock of the Victory Corporation for Dh960,000. Victory's net assets on April 1, 2018 totaled Dh2,500,000. Victory's equipment was undervalued by Dh500,000 and its inventory was undervalued by Dh200,000 as of the date of purchase. The equipment has a ten-year remaining life as of April 1, 2018; the inventory was sold during 2018. Victory reported Dh450,000 of net income during 2018 and paid dividends of Dh75,000. Assume that net income was recognized evenly during 2018 and dividends were declared and paid evenly during 2018 Required: a) Prepare a schedule to determine the amount of investment income to be reported by GMR during 2018 assuming that the equity method of accounting is applicable. (6 marks) b) Prepare a schedule to determine the balance in the investment account as of December 31, 2018 assuming that the equity method is applicable. (5 marks) c) Describe how the financial accounting and reporting would have differed if the equity method was not applicable. (2 marks) d) Describe how equity method investments are accounted for if GMR uses the fair value option of accounting for its investment. (2 marks)

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