Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. Duringthe 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 ofintercorporate ownership:Year20X220X320X4Winston CorporationOperatingIncome$100,000Year20X220X320X460,000250,000Dividends$ 40,00080,000120,000Fullbright CompanyDividendsNet IncomeFair Value Equity MethodNet Income$70,00040,00025,000Required:Compute the net income reported by Winston for each of the three years, assuming it accounts for its investment in Fullbright bycarrying the investment at fair value, or using the equity method.$30,00060,00050,000

Under the equity method of accounting, an investment is first recorded at cost and then adjusted for…

Answered: Winston Corporation purchased 40…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 1MC

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