27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Equity method for stock investment

Hawkeye Company's balance sheet reported, under the equity method, its long-term investment in Raven Company for comparative years as follows:

  Dec. 31, Year 2 Dec. 31, Year 1
Investment in Raven Company stock (in millions) $281 $264

In addition, the Year 2 Hawkeye Company income statement disclosed equity earnings in the Raven Company investment as $25 million. Hawkeye Company neither purchased nor sold Raven Company stock during Year 2. The fair value of the Raven Company stock investment on December 31, Year 2, was $310 million.

Explain the change in Investment in Raven Company Stock from December 31, Year 1, to December 31, Year 2.

To determine

Equity investment: Equity investments are stock instruments which claim ownership in the investee company and pay a dividend revenue to the investor company.

Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

To explain: The change in stock investment balance for Company H


Prepare Investment in Company R Stock account to find the stock investment balance as on December 31.

Investment in Company R Stock account

Investment in Company R Stock
Date Details Debit ($) Date Details Credit ($)
  Cash 264,000,000     Cash(dividends) 8,000,000
  Income 25,000,000        
  Total 289,000,000     Total 8,000,000
Balance $281,000,000  

Table (1)

Working Notes:

Compute dividends received from Company R...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Why should policymakers think about incentives?

Principles of Economics (MindTap Course List)

Explain the calculation of net sales and net purchases.

College Accounting (Book Only): A Career Approach

Work in Process Inventory consists of three items: materials, labor, and factory overhead.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Describe the different ways in which capital can be transferred from suppliers of capital to those who are dema...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)