Tinker Co Owns 25% of the Common Stock of Harbor Co

question 70

Essay

Tinker Co. owns 25% of the common stock of Harbor Co. and uses the equity method to account for the investment. During 2011, Harbor reported income of $120,000 and paid dividends of $40,000. Harbor owns a building with a useful life of twenty years which is undervalued by $80,000.
Required:
Prepare a schedule to show the equity income Tinker should recognize for 2011 related to this investment.

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Definitions:

Depreciation Expense

Spreading the expense of a tangible asset over the period it's expected to be used.

Income Statement

A financial report that shows a company's revenues, expenses, and profits over a specific period, providing insight into its operating performance.

Expense Accounts

Accounts used to record the consumption of goods and services, or costs incurred in operating a business.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the appropriate period for a more accurate financial statement.