On January 1,20X7,Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash.Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8.The fair value of shares held by Yang was $110,000 and $105,000 on December 31,20X7 and 20X8 respectively.
-Based on the preceding information,what amount will be reported by Yang as balance in investment in Spiel on December 31,20X8,if it used the fair value method of accounting?
A)$105,000
B)$118,750
C)$100,000
D)$122,500

Question

Quizplus · Accepted Answer

Under the fair value method, the investment is reported at its fair value at the end of the period. Therefore, Yang will report the investment in Spiel at $105,000, which is the fair value on December 31, 20X8.

On January 1,20X7,Yang Corporation Acquired 25 Percent of the Outstanding