Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $668,500 cash. Immediately after the acquisition, the two companies have…

Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $668,500 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $612,900. Credit balances are indicated by parentheses.

 Adams Clay Current assets$334,000 $250,000 Investment in Clay 668,500  0 Equipment 793,900  546,000 Liabilities (211,000) (207,000)Common stock (350,000) (150,000)Retained earnings, 1/1/17 (1,235,400) (439,000) 

In 2017, Clay earns a net income of $74,100 and declares and pays a $5,000 cash dividend. In 2017, Adams reports net income from its own operations (exclusive of any income from Clay) of $137,000 and declares no dividends. At the end of 2018, selected account balances for the two companies are as follows:

 AdamsClayRevenues$(430,000)$(426,000)Expenses 311,750  319,500 Investment income Not given  0 Retained earnings, 1/1/18 Not given  (508,100)Dividends declared 0  8,000 Common stock (350,000) (150,000)Current assets 618,000  310,300 Investment in Clay Not given  0 Equipment 698,900  579,600 Liabilities (136,000) (152,700)  

  1. What are the December 31, 2018, Investment Income and Investment in Clay account balances assuming Adams uses the:
  • Equity method.
  • Initial value method.
  1. How does the parent’s internal investment accounting method choice affect the amount reported for expenses in its December 31, 2018, consolidated income