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On January 1, 2018, Johnson Corporation purchased 600,000 shares of Keith Company common stock at $25 cash per share. This represents 30% of Keiths outstanding

On January 1, 2018, Johnson Corporation purchased 600,000 shares of Keith Company common stock at $25 cash per share. This represents 30% of Keiths outstanding voting stock. Johnson accounts for the investment using the equity method because it is able to exert significant influence over Keith. Use the financial statement effects template (with amounts and accounts) to record the following transactions. Purchase of the 600,000 shares at $25/share. Keith reported annual net income of $1,480,000. Johnson received a cash dividend of $0.75 per common share from Keith. The year-end market price of Keith common stock is $28/share. Briefly explain in your own words how Johnsons treatment of these events would have been different if their purchase had represented only 2% of Keiths voting stock.

Balance Sheet

Transaction Cash Asset +

Noncash

Assets

= Liabilities +

Contributed

Capital

+

Earned

Capital

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Income Statement

Revenue - Expenses =

Net

Income

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