70.2K

Verified Solution

Link Copied!

14. On January 6, Year 1, Bulldog Co. purchased 28% of the outstanding stock of Gator Co. for $245,700. Gator Co. paid total dividends of $28,900 to all shareholders on June 30. Gator had a net loss of $56,500 for Year 1.

Required:

A.	Journalize Bulldogs purchase of the stock, receipt of the dividends, and the adjusting entry for the equity loss in Gator Co. stock. Refer to the Chart of Accounts for exact wording of account titles.
B.	Compute the balance of Investment in Gator Co. Stock on December 31, Year 1.
C.	How does valuing an investment under the equity method differ from valuing an investment at fair value?

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5		Adjusting Entries
6
7

B. Compute the balance of Investment in Gator Co. Stock on December 31, Year 1.

C. How does valuing an investment under the equity method differ from valuing an investment at fair value?

Under the equity method, the investor will record their proportionate share of the net increase (or decrease) of the book value of the investee resulting from ------ . The fair value method uses ------ to value the investment in the investee. These two methods result in different valuations because the equity method is based upon ------- , while the fair value approach uses ------- . The two methods -------- related to each other over time. While changes in book value can influence market prices, many other variables can influence the market price of a stock.

Answer & Explanation Solved by verified expert

See Answer