Reference no: EM131746866

Accounting for Investments Using the Cost and Equity Methods

On 1/1/16, Integrity Corporation's net worth was as follows:

Common stock (15,000 shares, $10 par value)

$ 150,000
Additional paid-in-capital
30,000
Retained earnings
60,000
Total
$240,000

On 1/1/16, Honesty, Inc. purchased 2,500 shares of Integrity Corporation at a price of $29 per share. Integrity Corporation's equity securities are not readily marketable. Honesty could not attribute any of the excess cost over book value to any specific Integrity assets and considered this excess to be goodwill.

Integrity's earnings and dividends for the next three years were as follows:

Year Net Income Dividends
2016 10,000 6,000
2017 25,000 30,000
2018 80,000 40,000