Jones, Incorporated acquired 15% of Anderson Corporation on January 1, 2020, for $105,000 when the Andersons book value was $600,000. During 2020 Anderson reported net income of $150,000 and declared dividends of $50,000. By January 1, 2021, the fair value of Jones 15% investment in Anderson had increased to $120,000.

On January 1, 2021, Jones purchased an additional 25% of Anderson for $200,000. Any excess cost over book value was attributable to goodwill with an indefinite life. The fair-value method was used during 2020 but Jones has deemed it necessary to change to the equity method after the second purchase. During 2021 Anderson reported net income of $180,000, and declared dividends of $55,000.

How would Jones record its January 1, 2021 investment in Anderson under the equity method?

rev: 10_16_2020_QC_CS-234307

Multiple Choice

• Jones must retrospectively adjust its retained earnings for the difference between 2020 equity method income and income recognized under the fair-value method for its investment in Anderson account.

• Jones must debit the Investment in Anderson account for $200,000.

• Jones must record an adjustment to additional paid-in capital for $200,000.

• Jones must record a credit of $15,000 to the Investment in Anderson account.

• Jones must record a debit to additional paid-in capital for $15,000.