X reports its acquisition of Y by the equity method. They paid $656,000 in cash for 80% (80,000 shares) of Y on January 1^st. Year 2. Y reported income of $120,000 in Year 2 and $140,000 in Year 3. They paid dividends of $60,000 in both years 2 and 3. On January 1^st. Year 4, Y sold the investment in Y when the shares were trading at $10/share.

i. Calculate the balance in the investment account,under the equity method,

at December 31^st, Year3( 5 marks).

ii. Make the journal entry for the gain /loss on the sale of the investment in Year 4(5 marks)

iii. What is the balance in the investment account at the end of December 31^st. Year 3 under the cost method(1 mark)

(YOU MUST SHOW ALL YOUR WORKING PAPERS AS MARKS ARE ALLOCATED FOR THESE)

NOTE:-YOU MAY USE THE TABLE BELOW TO COMPLETE YOUR BALANCE SHEET. THERE ARE MISSING ROW ITEMS WHICH YOU WILL HAVE TO INSERT AS WELL AS YOUR DEBITS & CREDITS.

X & Y COMPANIES

Consolidated Balance Sheet

As at January 1^st., Year 6

$(000s)

						TOTAL
CASH
ACCOUNTS	RECEIVABLE
GOODWILL
INVENTORIES
PLANT
ACC. DEPN
PATENTS
TOTAL ASSETS
CURRENT	LIABILITIES
LONG TERM	DEBT
COMMON	SHARES
RETAINED	EARNINGS
TOTAL LIABILITIES AND OWNERS EQUITY

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