Coakley Company acquired 30% of the outstanding common stock of Ginger Inc. on January 1, 2012, by paying $1,800,000 for 60,000 shares. Ginger declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2012. Ginger reported net income of $800,000 for the year. Instructions
(a) Prepare the journal entries for Coakley Company for 2012, assuming Coakley cannot exercise significant influence over Ginger. (Use the cost method.)
(b) Prepare the journal entries for Coakley Company for 2012, assuming Coakley can exercise significant influence over Ginger. (Use the equity method.)
(c) The board of directors of Coakley Company is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that explains each method and shows in tabular form the account balances under each method at December 31, 2012.