Hawkeye Company’s balance sheet reported, under the equity method, its long-term investment in Raven Company

Hawkeye Company’s balance sheet reported, under the equity method, its long-term investment in Raven Company for comparative years as follows:


Dec. 31, 2015 Dec. 31, 2014
Investment in Raven Company stock (in millions) $281 $264


In addition, the 2015 Hawkeye Company income statement disclosed equity earnings in the Raven Company investment as $25 million. Hawkeye Company neither purchased nor sold Raven Company stock during 2015. The fair value of the Raven Company stock investment on December 31, 2015, was $310 million.

Explain the change in Investment in Raven Company Stock from December 31, 2014, to December 31, 2015.


Answer:

(in millions)
Investment in Raven Company stock, December 31, 2014………………………… $264
Plus equity earnings in Raven Company…………………………………………… 25
Less dividends received*………………………………………………………………… (8)
Investment in Raven Company stock, December 31, 2015……………………… $281
* The Raven Company investment is accounted for under the equity method. Since
there were no purchases or sales of Raven Company stock, a dividend must have
been received. This would explain how the ending balance of the investment
account went from $264 to $281, with $25 million in equity earnings. Since the
investment is accounted for under the equity method, the fair value is not used
for valuation purposes.