Answer:
The Various answers are clearly explained in the Explanations. Thank you.
Explanation:
First, we calcuate the Net Income of Ravine Corporation Based on the FairValue Method
Year OPerating Income UnrealizedGain Dividend inc. Net Income
20x6 $140,000 11,000 6,000 $157,000
20x7 80,000 11,000 12,000 $103,000
20x8 220,000 11,000 12,000 $243,000
20x9 160,000 11,000 6,000 $177,000
Kindly note, thta the dividend income for each year is based on 30% of the Dividend of Valley for that year for instance, Dividend income for 20x6 = 0.3 x $20,000 = $6,000
Next we calculate the Net Income of Ravine Corpoartion Under the Equity Method
Year OPerating Income Share ofo Income in Valley Net Income
20x6 $140,000 9,000 149 ,000
20x7 80,000 15,000 95,000
20x8 220,000 3,000 223,000
20x9 160,000 12,000 172,0000
NOte as well that the Share of Income in Valley is 30% of the yearly net income of Valley Industries.
Question B) Part 1
Ravine Corporation Journal Entries
S/N Description Debit Credit
1 Cash 12,000
Dividend Revenue 12,000
Being the record of dividend received from valley industries
2. Fair Value Adjustment 11,000
Unrealized holding gain or loss 11,000
Being the rcord of fair value change in value of the investments
Question B) Part 2
S/N Description Debit Credit
1 Cash 12,000
Investment in Valley 12,000
Being the record of dividend received from valley industries
2. Investment in Valley 3,000
Investment Income 3,000
BBeing the share of income of Ravine in Valley
