On January 1, 2014, Magic Johnson Corporation acquired 100,000 of the 400,000 outstanding s


QUESTION :

On January 1, 2014, Magic Johnson Corporation acquired 100,000 of the 400,000 outstanding shares of common stock of Wilt Chamberlain Corporation as a long-term investment at a cost of $50 per share. The fair value and the book value of the investee’s net assets were both $20,000,000 at January 1, 2014. Wilt Chamberlain Corporation paid a cash dividend of $2.00 per common share on September 5, 2014 and reported net income of $1,400,000 for the year ending December 31, 2014. The market value of the Wilt Chamberlain stock was $47 at December 31, 2014.

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Instructions

(a) Assuming Magic Johnson does not exercise significant influence over the investee, determine the following:

(1) Amount to report as investment (dividend) revenue for the year ending December 31, 2014.
(2) Amount to report as the carrying value of the investment at December 31, 2014.

(b) Assuming Magic Johnson does exercise significant influence over the investee, determine the following:

(1) Amount to report as investment revenue for the year ending December 31, 2014.
(2) Amount to report as the carrying value of the investment at December 31, 2014.

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