Caruso Corporation purchased 35,000 shares of common stock of Howe Company as a long-term investment for $700,000. During the year, Howe Company reported net income of $300,000 and paid dividends of $100,000.
Instructions
(a) Assuming that the 35,000 shares represent a 10% interest in Howe Company:
1. Prepare the journal entry to record the investment in Howe Company stock.
2. Prepare any entries that Caruso Corporation should make in accounting for its investment in Howe Company stock during the year.
3. What is the balance of the Stock Investments account on Caruso Corporation's books at the end of the year?
(b) Repeat requirements (a) 1. 2. and 3. above except assume that the 35,000 shares represent a 20% interest in Howe Company.