Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 85 E2-4 Carrying an Investment at Fair Value versus Equity Method Reporting Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. During the period of January 1, 20X2, through December 31, 20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each year. The companies reported the following operating results and dividend payments during the first three years of intercorporate ownership: Year 20X2 20X3 20X4 Winston Corporation Operating Income $100,000 60,000 250,000 Dividends $ 40,000 80,000 120,000 Fullbright Company Net Income $70,000 40,000 25,000 Dividends $30,000 60,000 50,000 Required Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright by (a) carrying the investment at fair value, or (b) using the equity method.

Chapter 2 Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential 85 E2-4 Carrying an Investment at Fair Value versus Equity Method Reporting Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. During the period of January 1, 20X2, through December 31, 20X4, the market value of Winston's investment in Fullbright's stock increased by $20,000 each year. The companies reported the following operating results and dividend payments during the first three years of intercorporate ownership: Year 20X2 20X3 20X4 Winston Corporation Operating Income $100,000 60,000 250,000 Dividends $ 40,000 80,000 120,000 Fullbright Company Net Income $70,000 40,000 25,000 Dividends $30,000 60,000 50,000 Required Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright by (a) carrying the investment at fair value, or (b) using the equity method.

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

ChapterD: Investments

Section: Chapter Questions

Problem D.12EX

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