On January 1, 2020, Ella Ltd. purchased 25% of the common shares of JB Inc. for $2,200,000. In 2020, JB reported net income of $280,000 and paid dividends of $100,000.
Required:
a. Which of the following conditions must be met for Ella to use the equity method to report its investment in JB?
i.Ella owns at least 20% of the voting shares of JB.
ii.Ella has control over JB.
iii.Ella has a significant interest in JB.
iv.Ella is able to exercise significant influence over JB.
b. How much income would be reported by Ella in 2020 related to its investment in JB under the equity method?

Question

Quizplus · Accepted Answer

The Answer of On January 1, 2020, Ella Ltd. purchased 25% of the common shares of JB Inc. for $2,200,000. In 2020, JB reported net income of $280,000 and paid dividends of $100,000.
Required:
a. Which of the following conditions must be met for Ella to use the equity method to report its investment in JB?
i.Ella owns at least 20% of the voting shares of JB.
ii.Ella has control over JB.
iii.Ella has a significant interest in JB.
iv.Ella is able to exercise significant influence over JB.
b. How much income would be reported by Ella in 2020 related to its investment in JB under the equity method?