Question

Use the financial statement effects template to record the following transactions involving investments in marketable securities accounted for using the equity method.

a. Purchased 12,000 common shares of Bakersfield Co. at $12 per share; the shares represent 30% ownership in Bakersfield.
b. Received a cash dividend of $2.00 per common share from Bakersfield.
c. Bakersfield reported annual net income of $123,000.
d. Sold all 12,000 common shares of Bakersfield for $159,000

Answer 1

1. Cash: decreases

Investment : increases

By 144,000= 12000×12

2. Cash: increases

Income : increases

By 24000= 2×12000

3. No effect

4. Cash: increases by 159000

Investment : decreases by 144000

Profit: 15000