Question

Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s common stock for...

Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s common stock for $80,000 on January 2, 2016. During 2017, Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000. If Pacer Company uses the equity method of accounting for its investment in Queen Company, its Investment in Queen Company account at December 31, 2017 should be

Refer to the facts below. If Pacer Company uses the lower of cost or market method of accounting for its investment in Queen Company, and the value of its investment hasn’t changed, its Investment in Queen Company account on December 31, 2017, should be

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Answer #1

Equity Method

Investment in Queen

Shares purchased

   80,000.00

Share of Profit

     6,000.00

=20000*300/1000

Less: Dividend received

     2,400.00

=8000*300/1000

Value as at December 2017

   83,600.00

Lower of cost or market

Investment in Queen

Shares purchased (cost)

   80,000.00

Value as at December 2017

   80,000.00

Dividend recoganised in P/l as Income. Profits not accounted.
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