On July 1,20X8,Fair Logic Corporation acquires 75 percent of Integrated Systems Inc.common stock for its underlying book value.At the time of acquisition,the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems.On January 1,20X8 Integrated reported common stock of $100,000 and retained earnings of $130,000.For the year 20X8,Integrated reports the following items:
Fair Logic uses the equity method in accounting for this investment.

-Based on the preceding information,what journal entry would Fair Logic make to record equity method income for the year?
A)Option A
B)Option B
C)Option C
D)Option D

Question

On July 1,20X8,Fair Logic Corporation acquires 75 percent of Integrated Systems Inc.common stock for its underlying book value.At the time of acquisition,the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems.On January 1,20X8 Integrated reported common stock of $100,000 and retained earnings of $130,000.For the year 20X8,Integrated reports the following items:
Fair Logic uses the equity method in accounting for this investment.
 
-Based on the preceding information,what journal entry would Fair Logic make to record equity method income for the year?
A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Under the equity method of accounting, the investor records its share of the investee's net income as an increase to its investment account. 
The noncontrolling interest's proportionate share of net income is allocated to them and presented separately in the consolidated financial statements. 
Option A is incorrect because it records the entire net income of Integrated Systems in Fair Logic's income statement, which is not appropriate under the equity method. 
Option C is incorrect because it does not record the noncontrolling interest's share of net income. 
Option D is incorrect because it records the entire net income of Integrated Systems in Fair Logic's income statement without considering the noncontrolling interest's share of net income.

On July 1,20X8,Fair Logic Corporation Acquires 75 Percent of Integrated