Big Company owns a 20 percent interest in Little Company purchased on January 1, 2017, for $200,000. Little reports net income of $250,000, $300,000, and $400,000, respectively, in the next three years whil

Year Ending Fair value Difference

2017 $260,000 $245,000 $15,000

2018 $340,000 $282,000 $58,000

2019 $460,000 $325,000 $135,000

Missing text:

Big Company owns a 20 percent interest in Little Company purchased on January 1, 2017, for $200,000. Little then reports net income of $250,000, $300,000, and $400,000, respectively, in the next three years while declaring dividends of $50,000, $100,000, and $200,000. The fair values of Big's investment in Little, as determined by market prices, were $245,000, $282,000, and $325,000 at the end of 2017, 2018, and 2019, respectively

Question:

Compare the value with equity method and fair value

Explanation:

For the equity method we need to add up the 20% of the income and subtract the 20% of the dividends as we have a portion of influence inside the company we earn what the company earns and we distribute that amount to ourselve so the cash is pumping money form one company nto another not a gain.

Year Beg Income Dividends Ending Fair value Diff

2017 200,000 50,000 10,000 260,000 245,000 15,000

2018 260,000 60,000 20,000 340,000 282,000 58,000

2019 340,000 80,000 40,000 460,000 325,000 135,000