Question

Accounting for Investments Using the Cost and Equity Methods

On 1/1/x1, Omega Corporation’s net worth was as follows:

Common stock (15,000 shares, $10 par value)                                             $150,000

Additional paid-in capital                                                                             30,000

Retained Earnings                                                                                          60,000            

    Total                                                                                                          $240,000           

On 1/1/14, Alpha, Inc. purchased 3,000 shares of Omega Corporation at a price of $29 per share. Omega Corporation’s equity securities are not readily marketable. Alpha could not attribute any of the excess cost over book value to any specific Omega assets and considered this excess to be goodwill.

Omega’s earnings and dividends for the next three years were as follows:

Year                                     Net Income                                             Dividends

20x1                                        10,000                                                6,000

20x2                                        25.000                                             30,000

20x3                                       80,000                                             40,000

Required:

Complete the following table, assuming that Alpha, Inc. had significant influence over Omega Corporation.

For Alpha, Inc.’s financial statements:

Year

Balance sheet amount reported for Investment in Omega Corporation at end of 12/31

Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31

20x1

20x2

20x3

Complete the following table, assuming that Alpha, Inc. did not have significant influence over Omega Corporation:

For Alpha, Inc.’s financial statements:

Year

Balance sheet amount reported for Investment in Omega Corporation at end of 12/31

Income statement amount reported for Investment Income from Omega Corporation for the fiscal year ended 12/31

20x1

20x2

20x3

Attach an Excel spreadsheet containing documentation to support the above reported amounts.

Answer 1