Ravine Corporation purchased 30 percent ownership of Valley Industries for $94,800 on January 1, 20X6, when Valley had capital stock of $260,000 and retained earnings of $56,000. During the period of January 1, 20X6, through December 31, 20X9, the market value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for the years 20X6 through 20X9:
Dividends Declared
Year Operating Income, Ravine Corporation Net Income, Valley Industries Ravine Valley
20X6 $ 140,000 $ 30,000 $ 70,000 $ 20,000
20X7 80,000 50,000 70,000 40,000
20X8 220,000 10,000 90,000 40,000
20X9 160,000 40,000 100,000 20,000
Required:
a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment using the cost method and the equity method?
b-1. Give all appropriate journal entries for 20X8 that Ravine made under the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Answers: 3
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