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    Fair value and equity methods

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    Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Maxey Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Linden Company.
    (a) Fair Value Method (b) Equity Method
    Investment account & Investment Account &
    Dividend Revenue Account Revenue
    1. At the beginning of Year 1, Maxey bought 30% of Linden's common stock at its book value. Total book value of all Linden's common stock was $800,000 on this date.
    2. During Year 1, Linden reported $60,000 of net income and paid $30,000 of dividends.
    3. During Year 2, Linden reported $30,000 of net income and paid $40,000 of dividends.
    4. During Year 3, Linden reported a net loss of $10,000 and paid $5,000 of dividends.
    5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.

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    Solution Summary

    The solution explains the transactions for dividends and investments under fair value method and equity method