Response to the following problem:
Apply the appropriate accounting method for a 45% investment
Humphrey Financial paid $495,000 for a 45% investment in the common stock of Holmes, Inc. For the first year, Holmes reported net income of $206,000 and at year-end declared and paid cash dividends of $97,000. On the balance-sheet date, the fair value of Humphrey's investment in Holmes stock was $402,000.