On January 1,2007,Firewire Company acquired 40 percent of Browser Company's common stock.For this acquisition,Firewire paid $45,000 above book value.The full differential was attributed to equipment with a remaining life of ten years and zero salvage value at the date of acquisition.During 2007 and 2008,Browser reported net income of $90,000 and $50,000 and paid dividends of $40,000 and $60,000,respectively.Firewire reported a balance in its investment account of $230,000 on December 31,2008.It uses the equity method in accounting for this investment.
-Based on the preceding information,during 2007,Firewire will report:

Question

Quizplus · Accepted Answer

The equity method increases the investment account for the investor's share of the investee's net income and decreases the investment account for the investor's share of the investee's dividends. Firewire's share of Browser's net income for 2007 is $90,000 x 40% = $36,000. Firewire's share of Browser's dividends for 2007 is $40,000 x 40% = $16,000. Therefore, Firewire's investment account balance will increase by $36,000 - $16,000 = $20,000 during 2007.

On January 1,2007,Firewire Company Acquired 40 Percent of Browser Company's