For 2012,2013,and 2014,Squid Corporation Earned Net Incomes of $40,000,$70,000,and $100,000,respectively,and

question 34

Essay

For 2012,2013,and 2014,Squid Corporation earned net incomes of $40,000,$70,000,and $100,000,respectively,and paid dividends of $24,000,$32,000,and $44,000,respectively.On January 1,2012,Squid had $500,000 of $10 par value common stock outstanding and $100,000 of retained earnings.
On January 1 of each of these years,Albatross Corporation bought 5% of the outstanding common stock of Squid paying $37,000 per 5% block on January 1,2012,2013,and 2014.All payments made by Albatross in excess of book value were attributable to equipment,which is depreciated over five years on a straight-line basis.
Required:
1.Assuming that Albatross uses the cost method of accounting for its investment in Squid,how much dividend income will Albatross recognize for each of the three years and what will be the balance in the investment account at the end of each year?
2.Assuming that Albatross has significant influence and uses the equity method of accounting (even though its ownership percentage is less than 20%),how much net investee income will Albatross recognize for each of the three years?

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Definitions:

Involuntary Dissolution

The forced termination of a corporation's existence by court order, often due to failure to comply with legal requirements or because of actions detrimental to public interest.

Receiver

A court-appointed person responsible for taking custody of and managing property or assets for the benefit of creditors or other parties during legal proceedings.

Resulting Corporation

A corporation that emerges from the combination or merger of two or more separate entities.

Surviving Corporation

is a corporation that remains intact after a merger or acquisition, absorbing the assets and liabilities of the other entity involved.