Question
On July 1, 2021, Clearwater Inc. purchased 6,500 shares of the outstanding common stock of Mountain Corporation at a cost of $165,000. Mountain had 26,000
On July 1, 2021, Clearwater Inc. purchased 6,500 shares of the outstanding common stock of Mountain Corporation at a cost of $165,000. Mountain had 26,000 shares of outstanding common stock. The total book value and total fair value of Mountains individual net assets on July 1, 2021, are both $660,000. The total fair value of the 26,000 shares of Mountains common stock on December 31, 2021, is $740,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021:
Dividends declared and paid, January 1June 30 | $ | 11,600 | |
Dividends declared and paid, July 1December 31 | $ | 11,600 | |
Net income, January 1June 30 | $ | 13,600 | |
Net income, July 1December 31 | $ | 17,600 | |
Required: 1. Prepare the necessary entries for 2021 under the equity method (other than for the purchase). 2. Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
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