Option #1: Equity Method of Accounting

On 1/1/xx, Company A purchases 100% of Company B for $100,000 cash. On 12/31/xx, Company B realizes profit of $20,000 and pays dividends of $5,000.

Using the ACT470_Mod01-Option01.xlsx Excel spreadsheet in the Module 1 folder, you are to:

1. Prepare all required entries for Company A associated with the above activities utilizing the equity method.
2. Determine the balance in Company A’s investment account at the end of the year. Highlight the 12/31/xx balance in yellow.

Submission Requirements:

• Clearly identify the requirements being addressed.
• Show all calculations within the cells of an Excel spreadsheet. This means that you must use formulas and links so that the thought process can be examined. Populating a result, without showing the supporting calculation, will not be sufficient.
• Make good use of comments to convey your thought process as well.
• No hard coding of solutions.
• Submit a single MS Excel file for grading.
• Review the grading rubric following this assignment, to understand how you will be graded on this assignment. Reach out to your instructor if you have questions about the assignment.

NOTE: As it is necessary in the accounting field to annotate workpapers to support conclusions, the critical thinking assignments will provide the opportunity to clearly annotate and explain your responses in an effort for you to refine this skill.