Reference no: EM133009646
Assume that, based on the facts and circumstances, OBC determined it should account for its investment in NBC common stock using the equity method.
Because NBC is engaging in R&D and has no approved product to sell, it expects to report losses for at least several quarters before reporting income. Notwithstanding expected losses, NBC's creditors and investors hope that NBC will successfully develop a product and receive approval to sell the product at a substantial profit at some time in the future.
During the initial year of operations, NBC reports quarterly income (loss) as follows:
Quarter ended Amount
3/31/2019 ($2,000,000)
6/30/2019 ($5,000,000)
9/30/2019 ($5,000,000)
12/31/2019 ($2,000,000)
In December 2019, NBC unexpectedly received regulatory approval to begin sales of its first product. NBC expects the product to be purchased in large quantities beginning in January 2020 and to be immediately profitable.
Problem 1: Calculate the income (loss) that OBC will report in its income statement for each quarter, and the balance in the investment account on the corresponding balance sheet date.
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