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Adams, Inc., acquires Clay Corporation on January 1, 2014, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account
Adams, Inc., acquires Clay Corporation on January 1, 2014, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clay's equipment (with a five-year life) is actually worth $440,000. Credit balances are indicated by parentheses Adams Clay S 300,000 220,000 Current assets Investment in Clay Equipment 10,000 600,000 390,000 (200,000) (160,000) (350,000) (150,000) (860,000) (300,000) Common stock Retained eamings, 1/1/14 In 2014, Clay earns a net income of $55,000 and declares and pays a $5,000 cash dividend. In 2014 Adams reports net income from its own operations (exclusive of any income from Clay) of $125,000 and declares no dividends. At the end of 2015, selected account balances for the two companies are as follows Adams Clay $ (400,000)(240,000) Revenues Expenses Investment income 290,000 180,000 Not given Not given (350,000) Retained eamings, 1/1/15 Dividends declared Common stock Current assets 8,000 (350,000) (150,000) 580,000 262.000 Not given Investment in Clay Equipment Liabilities 520,000 420,000 (152,000 (130,000) a. Determine the investment income for 2015 and the balance in Investment in Clay account as on December 31, 2015 assuming that Adams uses the: Equity method Initial value method b. How does the parent's internal investment accounting method choice affect the amount reported for expenses in its December 31, 2015, consolidated income statement? Equity method Initial value method Partial equity method
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