Mr. Marino’s purchase of LifePath Fitness was done through his business. The investment has always been accounted for using the cost method on his firm’s books. However, early in 2012 he decided to take his company public. He is preparing an IPO (initial public offering), and he needs to have the firm’s financial statements audited. One of the issues to be resolved is to restate the investment in LifePath Fitness using the equity method, since Mr. Marino’s ownership percentage is greater than 20%.
Instructions
(e) (1) Give the entries that would have been made on Marino’s books if the equity method of accounting for investments had been used since the initial investment. Assume the following data for LifePath.
|
2009 |
2010 |
2011 |
|
|
Net income |
$30,000 |
$70,000 |
$105,000 |
|
Total cash dividends |
$ 2,100 |
$20,000 |
$ 50,000 |
(2) Compute the balance in the LifePath Investment account at the end of 2011.