REFERENCE: Ref.01_16
Renfroe,Inc.acquires 10% of Stanley Corporation on January 1,2007,for $90,000 when the book value of Stanley was $ 1,000,000.During 2007,Stanley reported net income of $215,000 and paid dividends of $50,000.On January 1,2008,Renfroe purchased an additional 30% of Stanley for $325,000.Any excess of cost over book value is attributable to goodwill with an indefinite life.During 2008,Renfroe reported net income of $320,000 and paid dividends of $50,000.
-How much is the adjustment to the Investment in Stanley Corporation for the change from the fair-value method to the equity method on January 1,2008?

Question

Quizplus · Accepted Answer

The adjustment is calculated as Renfroe's share of Stanley's net income minus dividends received while using the fair-value method. Renfroe's share of Stanley's net income for 2007 is 10% of $215,000, which is $21,500. The dividends received are 10% of $50,000, which is $5,000. The adjustment is $21,500 - $5,000 = $16,500.

REFERENCE: Ref.01_16 Renfroe,Inc.acquires 10% of Stanley Corporation on January 1,2007,for $90,000 When