Questions: On January 1, 2024, Staub, Inc. decides to invest in 11,200 shares of Palomino stock when the stock is selling for 19 per share. On August 1, 2024, Palomino paid a 0.80 per share cash dividend to stockholders. On December 31, 2024, Palomino reports net income of 70,000 for 2024. Assume Palomino has 28,000 shares of voting stock outstanding during 2024 and Staub has significant influence over Palomino. Requirements 1. Identify what type of investment the Palomino stock is for Staub. 2. Journalize the transactions related to Staub's investment in the Palomino stock during 2024. 3. In what category and at what value would Staub's report the investment on the December 31, 2024, balance sheet?

To address the questions regarding Staub, Inc.'s investment in Palomino stock, let's analyze each requirement step by step:

1. Identify what type of investment the Palomino stock is for Staub.

   Since Staub, Inc. has significant influence over Palomino, this investment is classified as an "equity method" investment. Significant influence is typically indicated by ownership of 20% to 50% of the voting stock, and Staub owns 11,200 out of 28,000 shares, which is 40%. Therefore, the equity method is appropriate.

2. Journalize the transactions related to Staub's investment in the Palomino stock during 2024.

   • January 1, 2024: Purchase of Palomino stock

     • Debit: Investment in Palomino Stock $212,800 (11,200 shares x $19 per share)
     • Credit: Cash $212,800

   • August 1, 2024: Receipt of cash dividend

     • Debit: Cash $8,960 (11,200 shares x $0.80 per share)
     • Credit: Investment in Palomino Stock $8,960 (Under the equity method, dividends received reduce the carrying amount of the investment.)

   • December 31, 2024: Recognition of share of Palomino's net income

     • Staub's share of Palomino's net income = (11,200 shares / 28,000 shares) x $70,000 = $28,000
     • Debit: Investment in Palomino Stock $28,000
     • Credit: Investment Income $28,000

3. In what category and at what value would Staub report the investment on the December 31, 2024, balance sheet?

   • Category: The investment would be reported as a non-current asset under "Investments" on the balance sheet.
   • Value: The carrying value of the investment at year-end would be calculated as follows:
     • Initial investment: $212,800
     • Less: Dividends received: $8,960
     • Add: Share of net income: $28,000
     • Carrying value = $212,800 - $8,960 + $28,000 = $231,840

In summary, Staub's investment in Palomino is an equity method investment, and the transactions throughout the year reflect this accounting treatment. The investment is reported as a non-current asset at a carrying value of $231,840 on the December 31, 2024, balance sheet.