On 9/1/16 Johnson Corporation buys 30% of the stock in Rockford Industries for $100,000 and accounts for the investment under the equity method. At 12/31/16, the selling price of Rockford Industries' stock drops by 10%. As a result of this, Johnson Corporation would:

Question

Business

Aliza Braun

1 May, 14:32

On 9/1/16 Johnson Corporation buys 30% of the stock in Rockford Industries for $100,000 and accounts for the investment under the equity method. At 12/31/16, the selling price of Rockford Industries' stock drops by 10%. As a result of this, Johnson Corporation would:

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Answers (1)

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Tara Potter · Answer 1

do nothing.

Explanation:

Under the equity method, Johnson's investment in Rockford industries will only vary when Rockford distributes dividends (which reduces the investment amount) or when they earnings or losses. Johnson will recognize 30% f Rockford's earnings as income from is investment, and will also recognize 30% of Rockford's losses as a decrease in its investment (loss). The equity method is not based on stock price.