Question
Prepare the journal entries for each of the following transactions, assuming Chatwood Company uses (a) the fair value method and (b) the equity method for
Prepare the journal entries for each of the following transactions, assuming Chatwood Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hendricks Company.
(a) Fair Value Method (b) Equity Method
Transaction
1. At the beginning of Year 1, Chatwood bought 30% of Hendrick's common stock at its book value. Total book value of all Hendrick's common stock was $800,000 on this date.
2. During Year 1, Hendricks reported $60,000 of net income and paid $30,000 of dividends.
3. During Year 2, Hendricks reported $30,000 of net income and paid $20,000 of dividends.
4. During Year 3, Hendricks reported a net loss of $10,000 and paid $4,000 of dividends.
5. What is the Year 3 ending balance in the Investment account on Chatwood's books under each method?
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