Ravine Corporation purchased 30 percent ownership of Valley Industries for $94,800 on January 1, 20X6, when Valley had capital stock of $260,000 and retained earnings of $56,000. During the period of January 1, 20X6, through December 31, 20X9, the market value of Ravine's investment in Valley's stock increased by $11,000 each year. The following data were reported by the companies for the years 20X6 through 20X9: Dividends Declared
Year Operating Income, Ravine Corporation Net Income, Valley Industries Ravine Valley
20X6 $ 140,000 $ 30,000 $ 70,000 $ 20,000
20X7 80,000 50,000 70,000 40,000
20X8 220,000 10,000 90,000 40,000
20X9 160,000 40,000 100,000 20,000
Required:
a. What net income would Ravine Corporation have reported for each of the years, assuming Ravine accounts for the intercorporate investment using the cost method and the equity method?
b-1. Give all appropriate journal entries for 20X8 that Ravine made under the cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A. Ravine Corporation net income using the cost method

20X6 Net income=$146,000

20X7 Net income=$92,000

20X8 Net income =$229,000

20X9 Net income=$166,000

Ravine Corporation net income using the equity method

20X6 Net income=$149,000

20X7 Net income=$95,000

20X8 Net income=$223,000

20X9 Net income=$172,000

b-1 Dr Cash $12,000

Cr Dividend income $9,000

Cr Investment in S $3,000

b-2 Dr Cash $12,000

Cr Investment in S $12,000

Dr Investment in Valley stock $3,000

Cr Income from S $3,000

Explanation:

a. Calculation for what net income would Ravine Corporation have reported for each of the years

Ravine Corporation net income using the cost method

20X6 Net income= $140,000 + 0.30($20,000)

20X6 Net income=$146,000

20X7 Net income= $80,000 + 0.30($40,000)

20X7 Net income=$92,000

20X8 Net income= $220,000 + 0.30($30,000)

20X8 Net income =$229,000

20X9 Net income= $160,000 + 0.30($20,000)

20X9 Net income=$166,000

Calculation 20X8 Dividend declared

Dividend declared=($30,000 + $50,000 – $20,000 – $40,000 )+ $10,000

Dividend declared=$20,000+$10,000

Dividend declared=$30,000

Ravine Corporation net income using the equity method

20X6 Net income= $140,000 + 0.30($30,000)

20X6 Net income=$149,000

20X7 Net income= $ 80,000 + 0.30($50,000)

20X7 Net income=$95,000

20X8 Net income=$220,000 + 0.30($10,000)

20X8 Net income=$223,000

20X9 Net income=$160,000 + 0.30($40,000)

20X9 Net income=$172,000

b-1 Preparation of the journal entries for 20X8 that Ravine made under the cost method

Dr Cash $12,000

(0.30*$40,000)

Cr Dividend income $9,000

(0.30*$30,000)

Cr Investment in S $3,000

($12,000-$9,000)

b-2 Preparation of the journal entries for 20X8 that Ravine made under the Equity method

Dr Cash $12,000

Cr Investment in S $12,000

(0.30*$40,000)

Dr Investment in Valley stock $3,000

Cr Income from S $3,000

($12,000-$9,000)

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