On January 1, 20X7, Yang Corporation acquired 25 percent of theoutstanding shares of Spiel Corporation for $100,000 cash. SpielCompany reported net income of $75,000 and paid dividends of$30,000 for both 20X7 and 20X8. The fair value of shares held byYang was $110,000 and $105,000 on December 31, 20X7 and 20X8respectively.
1. Based on the preceding information, what amount will bereported by Yang as income from its investment in Spiel for 20X8,if it used the equity method of accounting?
$7,500
$11,250
$18,750
$26,250
2. Based on the preceding information, what amount will bereported by Yang as balance in investment in Spiel on December 31,20X8, if it used the equity method of accounting?
$108,250
$118,750
$100,000
$122,500
3. Based on the preceding information, what amount will bereported by Yang as income from its investment in Spiel for 20X7 ifit used the fair value option to account for its investment inSpiel?
$17,500
$12,500
$11,250
$7,500
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