Reference no: EM132779108

On January 1, 2018, Norton Corporation acquired a 15% interest in Liddy Corporation for $120,000 when Liddy's stockholder's equity consisted of $600,000 capital stock and $200,000 retained earnings. Book values of Liddy's net assets equaled their fair values on this date. Liddy's net income and dividends for 2018 through 2020 are as follows:

                          2018         2019         2020

Net income $15,000         $15,000     $25,000

Dividends paid 10,000       10,000        10,000

Problem 1: Assume that Norton uses the Fair Value/Cost Method of accounting for its investment in Liddy. The balance in the Investment in Liddy account at December 31, 2020 will be:

Problem 2: Assume that Norton has significant influence and uses the equity method of accounting for its investment in Liddy. The balance in the Investment in Liddy account at December 31, 2020 will be