Business, 15.02.2021 19:50, endreu2005

An investor company owns 40% of the outstanding common stock of an investee company, which allows the investor to exercise significant influence over the investee. The Equity Investment was reported at $1,050,000 as of the end of the previous year. During the year, the investor received dividends of $110,000 from the investee. The investee reports the following income statement for the year: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,600,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $344,000

Required:
a. How much equity income should the investor report in its current year income statement?
b. What amount should the investor report for the Equity Investment in its balance sheet at the end of the year?
c. Assume that the fair value of the investee company is $1.7 million at the end of the year (Approximately five times reported earnings). How should the fair value of the investee company be reflected in the investor’s financial statements?

Answers: 2

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An investor company owns 40% of the outstanding common stock of an investee company, which allows th...