Question
On 1/1/20x1, Palma Company acquires a 25% investment in the voting common stock of Small Fish, Inc. for $150,000. Palma Company accounts for their investment
On 1/1/20x1, Palma Company acquires a 25% investment in the voting common stock of Small Fish, Inc. for $150,000. Palma Company accounts for their investment using the equity method. (Assume that the book values of Small Fishs net assets equal their fair values, and that Small Fish is not a dividend payer.) For fiscal year-end 20x1 and 20x2, Small Fish, Inc. incurs a net loss of $500,000 and $300,000, respectively. For fiscal year-end 20x3, Small Fish, Inc. returns to profitability generating net income of $75,000
Required: Prepare a schedule showing the activity in Palma Companys investment in Small Fish from initial investment to fiscal year-end 20x3. Your schedule should begin with Palmas initial investment and show how the investment account is adjusted by Small Fishs periodic income or loss.
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