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Small Company reported 20X7 net income of $40,000 and paid dividends of $15,000 during the year. Mock Corporation acquired 20 percent of Small's shares
Small Company reported 20X7 net income of $40,000 and paid dividends of $15,000 during the year. Mock Corporation acquired 20 percent of Small's shares on January 1, 20X7, for $105,000. At December 31, 20X7, Mock determined the fair value of the shares of Small to be $121,000. Mock reported operating income of $90,000 for 20X7. Required: Compute Mock's net income for 20X7 assuming it a. Carries the investment in Small at fair value. b. Uses the equity method of accounting for its investment in Small. > Answer is complete but not entirely correct. a. Net income (fair value method) $ 92,000 b. Net income (equity method) $ 98,000
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