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Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years
Melville Inc. purchased 2,000 common shares (20%) of Raymore Ltd. on January 1, Year 5 for $42,000. Additional information on Raymore for the two years ending December 31, Year 6, is as follows: Year Net Income Dividends Paid Market Value per Share at end of period Year 5 $25,000 $13,000 $22.00 Year 6 28,000 14,000 22.60 At December 31, Year 6, Raymore had some inventory that was purchased from Melville. Melville had recorded a gross profit of $1,300 on the sale of this inventory. This gross profit should be deducted from Melville's Year 6 profit and investment account under the equity method. On January 1, Year 7, Melville sold its investment in Raymore for $47,000. Required Calculate the balance in the investment account at December 31, Year 6 under each of the cost and equity methods. Calculate the investment income for Year 6 under each of the cost and equity methods. Prepare the journal entries for the sale of the shares on January 1, Year 7 under each of the cost and equity methods
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