1. Parent Company purchased 100% of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings.

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1. Parent Company purchased 100% of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2.

REQUIRED:

a. Assuming Parent uses the cost method to account for its investment in Son, what is the balance in Parent’s Investment in Son account on December 31, 20X2, prior to consolidation?

b. Assuming Parent uses the equity method to account for its investment in Son, what is the balance in Parent’s Investment in Son account on December 31, 20X2, prior to consolidation?

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