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Snow Corporation Comparison of Fair Value & Equity Methods

Comparison of Fair Value and Equity Methods

On January 1, 2012, Snow Corporation purchased 20% of the 200,000 outstanding shares of common stock of Garvey Company for $4.00 per share as a long-term investment.

The purchase price of the shares was equal to their book value.

The following information is available about Garvey for 2012 and 2013:

End of 2012:
Reported net income $80,000
Cash dividends declared and paid $30,000
Market value of shares $3.80 per share

End of 2013:
Reported net income $90,000
Cash dividends declared and paid $35,000
Market value of shares $4.25 per share

1. Prepare journal entries to record this information, assuming:
a). Snow uses the fair value method and the securities are classified as available-for-sale.
b). Snow uses the equity method.

2. Assume 10,000 of the Garvey shares are sold on January 4, 2014, by Snow for $4.25 per share. Prepare the journal entry for this sale, assuming:
a). Snow uses the fair value method and the securities are classified as available-for-sale.
b). Snow uses the equity method.

Solution Summary

Your guidance is in excel, attached, with a column for each method on each date. Click in the cells to see how the amount were computed.

$2.19