Question
On January 1, Year 1, Company A purchased 25% of Company B's 100,000 outstanding shares of common stock for $10 per share. Company A applies
On January 1, Year 1, Company A purchased 25% of Company B's 100,000 outstanding shares of common stock for $10 per share. Company A applies the equity method for its investment in Company B. Company B reported a net profit of $400,000 for Year 1.
For each of the following independent situations that occurred during Year 2, select the Year 2 effect on the carrying amount of Company A's investment in Company B. Each choice may be used once, more than once, or not at all.
Situations | Answer | Choices | |
On December 1, Year 2, Company B declared and paid a dividend of $1 per share. | ( ) | A) Increase | |
The market price of one share of company B's common stock on December 31, Year 2, is $27. | ( ) | B) Decrease | |
Company B reported a net profit of $50,000 for Year 2. | ( ) | C) No Effect | |
On December 15, Year 2, Company B declared a dividend of $1 per share. The dividend will be paid on January 31, Year 3. | ( ) | ||
On November 30, Year 2, Company B sold inventory to Company A for $29,000. The cost of this inventory was $25,000. Company A sold this inventory to third parties during Year 3. | ( ) | ||
On March 1, Year 2, Company B declared and distributed a stock dividend of one share of common stock for every 10 shares of common stock owned. The market price of Company B's common stock on that date was $24 per share. | ( ) |
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