Reference no: EM132887581
On January 2, 2020, the Karter company purchased 2,000 of the 10,000 outstanding shares Bond for $ 180,000. During this year, Bond declared dividends of $ 30,000 and reported net income of $ 120,000. As of December 31, 2020, closing date, the fair Market value of these shares is $ 89 per share.
Problem 1: If the Karter company uses the economic method (equity method) to account for this investment, what should be the value of the investment on the books as of December 31, 2020?
a. $ 174,000
b. $ 180,000
c. $ 198,000
d. $ 204,000
Problem 2: Under the assumption that Karter can account for this investment using the fair value, the company will recognize (reflect) a (n)
a. dividend income of $ 6,000 on the Income and Expense Statement
b. decrease in investment value by $ 2,000
c. unrealized loss in the Statement of Income and Expenses for $ 2,000.
d. All of the above.
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