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4. INVESTMENTS Significant Influence Investment:

On January 2, Year 9, Investor Co. purchased 30% of Investee, Inc.s outstanding common shares for $400,000, which is equal to the Investors share of the fair value of the Investee net assets. Investor Co. acquired significant influence as a result of this transaction and accounts for the investment under the equity method because Investor Co. does notelect the fair value option to report its investment in Investee Inc.

For Year 9 Investee Inc. reported total net income of $500,000 and paid total dividends of $150,000.

Please answer the questions below. Show supporting calculations below each question.

QuestionsAnswers1.At what amount should Investor Co. record as an investment in Investee Inc. on January 2, Year 9?$2.What amount of the dividends received from Investee Inc. by Investor Co. should Investor Co. recognize as income in Year 9? [Hint: write out the journal entry and look at the types of accounts involved. Are any of the accounts revenue accounts?]$3.What should Investor, Co. recognize in Year 9 as the amount of income from its investment in Investee, Inc.?$4.

In the asset section of its December 31, Year 9, balance sheet, what amount should Investor Co. report as investment in Investee Inc.? The T-account below might help to arrive at the correct amount.

INVESTMENT

1/2/Yr 9 Initial investmentInvestee incomeDividends12/31/Yr 9 balance

$

Check figures: Question 4.December 31, Year 9, balance should be $505,000.

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