Ravine Corporation purchased 40 percent ownership of Valley Industries for $119,200 on January 1, 20X6, when Valley had capital stock of $253,000 and retained earnings of $45,000. During the period of January 1, 20X6, through December 31, 20X9, the market value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for the years 20X6 through 20X9:

Year	Operating Income, Ravine Corporation	Net Income, Valley Industries	Dividends Declared
			Ravine	Valley
20X6	$ 145,000	$ 36,000	$ 74,000	$ 26,000
20X7	98,000	56,000	74,000	46,000
20X8	225,000	10,000	94,000	40,000
20X9	165,000	46,000	104,000	26,000

Required:

a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment either by carrying the investment at fair value, or by using the equity method?

b-1. Give all appropriate journal entries for 20X8 that Ravine would make if it carries the investment at fair value.

b-2. Give all appropriate journal entries for 20X8 that Ravine would make if it uses the equity method.

What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment either by carrying the investment at fair value, or by using the equity method?

Net Income
Year	Fair Value	Equity Method
20X6	$155,400	$159,400
20X7		$120,400
20X8		$229,000
20X9		$183,400

b -1

Record the dividend received from Valley Industries under the fair value method.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1

Record the unrealized gain from Valley Industries under the fair value method.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2

b - 2

Record the dividend received from Valley Industries under the equity method.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1

Record the share in net income of Valley Industries under the equity method.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
2