For 2013 and 2014,Sabil Corporation Earned Net Income of $480,000

question 10

Essay

For 2013 and 2014,Sabil Corporation earned net income of $480,000 and $640,000 and paid dividends of $18,000 and $20,000,respectively.At January 1,2013,Sabil had $200,000 of $10 par value common stock outstanding and $1,500,000 of retained earnings.
On January 1 of each of these years,Phyit Corporation bought 10% of the outstanding common stock of Sabil paying $200,000 per 10% block on January 1,2013 and 2014.All payments made by Phyit in excess of book value were attributable to equipment,which is depreciated over ten years on a straight-line basis.
Required:
1.If Phyit uses the cost method of accounting for its investment in Sabil,how much dividend income will Phyit recognize in 2013 and 2014,and what will be the balance in the investment account at the end of each year?
2.If Phyit has significant influence and can justify using the equity method of accounting,how much net investee income will Phyit recognize for 2013 and 2014?

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