Reference no: EM132473643

Question - On January 2, 2018, ABC Corporation purchased stock in MSN Company. At the time of the purchase, MSN Company's book value was $4 million and its assets and liabilities were fairly reported. MSN reports income of $3 million and pays dividends of $1 million in 2018. ABC's December 31, 2018, balance sheet and 2018 income statement, without the investment in MSN, follow:

ABC Corp. Balance Sheet (in thousands) 31-Dec-18
Current Assets	$40,000
PPE (net)	450,000
Intangibles	5,000
Total Assets	$495,000
Current Liabilities	$20,000
LT Liabilities	200,000
Capital Stock	90,000
Retained Earnings	185,000
Total Liabilities and SE	$495,000

 

ABC Corp.  Income statement (in thousands) Year ended December 31, 2018
Sales revenue	$900,000
COGS	(750,000)
Operating expense	(140,000)
Net Income	$10,000

 

MSN Company Balance sheet (in thousands) 31-Dec-18
Current Assets	$5,000
PPE (net)	85,000
Total Assets	$90,000
Current Liabilities	$3,000
LT Liabilities	81,000
Capital Stock	1,000
Retained Earnings	5,000
Total Liabilities and SE	$90,000

 

MSN Company Income Statement (in thousands) Year ended December 31, 2018
Sales revenue	$60,000
COGS	(20,000)
Operating expense	(37,000)
Net Income	$3,000

Required - Prepare ABC's December 31, 2018 balance sheet and 2018 income statement under each of the following circumstances:

a. ABC's investment consists of 100,000 shares costing $15 per share and ABC uses the Fair Value method to account for it. The shares have a market value of $12 per share on December 31, 2018.

b. ABC's investment consists of 400,000 shares costing $15 per share and ABC accounts for it using the equity method.