Exhibit 13-1 On January 1, 2014, Oak Corporation paid $900,000 for 80,000 shares of Beech Company's common stock, which represents 35% of Beech's outstanding common stock. Beech reported income of $300,000 and paid a cash dividend of $100,000 during 2014.
-Refer to Exhibit 13-1. Oak should report the investment in Beech Company on its December 31, 2014, balance sheet at

Question

Quizplus · Accepted Answer

Oak Corporation should use the equity method to account for its investment in Beech Company since it owns 35% of Beech's stock. Under the equity method, Oak's investment is initially recorded at cost and subsequently adjusted for its share of Beech's income and dividends. Oak's share of Beech's income is 35% of $300,000, which is $105,000. Oak's share of the dividends is 35% of $100,000, which is $35,000. Therefore, the investment is reported at $900,000 + $105,000 - $35,000 = $970,000.

Exhibit 13-1 on January 1, 2014, Oak Corporation Paid $900,000