On January 1, 2016, Alden Company acquired 15,000 shares of the nonvoting common stock of Maxim Corporation as a long-term investment. Maxim reported a 2016 net income of $35,000. On January 2, 2017, Maxim declared and paid a $10,000 cash dividend. The fair value of the Maxim stock held by Alden on December 31, 2016, was $224,000. Alden Company has recorded only the following journal entries:
January 1, 2016: December 31, 2016 (end of the accounting period):
No entry
January 2, 2017: Required:
Based on the above information, answer the following questions:
A.What method did Alden use to account for the investment?
B.Did Alden fail to make an adjusting entry on December 31, 2016?
C.What condition, if changed, would require that the equity method be used?
D.Assuming the fair value method is used; calculate the valuation of the net investment on January 3, 2017.

Question

On January 1, 2016, Alden Company acquired 15,000 shares of the nonvoting common stock of Maxim Corporation as a long-term investment. Maxim reported a 2016 net income of $35,000. On January 2, 2017, Maxim declared and paid a $10,000 cash dividend. The fair value of the Maxim stock held by Alden on December 31, 2016, was $224,000. Alden Company has recorded only the following journal entries:
January 1, 2016:  December 31, 2016 (end of the accounting period):
No entry
January 2, 2017:  Required:
Based on the above information, answer the following questions: 
A.What method did Alden use to account for the investment?
B.Did Alden fail to make an adjusting entry on December 31, 2016?
C.What condition, if changed, would require that the equity method be used?
D.Assuming the fair value method is used; calculate the valuation of the net investment on January 3, 2017.

Quizplus · Accepted Answer

The Answer of On January 1, 2016, Alden Company acquired 15,000 shares of the nonvoting common stock of Maxim Corporation as a long-term investment. Maxim reported a 2016 net income of $35,000. On January 2, 2017, Maxim declared and paid a $10,000 cash dividend. The fair value of the Maxim stock held by Alden on December 31, 2016, was $224,000. Alden Company has recorded only the following journal entries:
January 1, 2016:  December 31, 2016 (end of the accounting period):
No entry
January 2, 2017:  Required:
Based on the above information, answer the following questions: 
A.What method did Alden use to account for the investment?
B.Did Alden fail to make an adjusting entry on December 31, 2016?
C.What condition, if changed, would require that the equity method be used?
D.Assuming the fair value method is used; calculate the valuation of the net investment on January 3, 2017.

On January 1, 2016, Alden Company Acquired 15,000 Shares of the Nonvoting