On January 1, 2017, Pearl Co. purchased 23,000 shares (a 10%
interest) in Elton John Corp. for $1,330,000. At the time, the book
value and the fair value of John’s net assets were
$12,300,000.
On July 1, 2018, Pearl paid $2,840,000 for 46,000 additional shares
of John common stock, which represented a 20% investment in John.
The fair value of John’s identifiable assets net of liabilities was
equal to their carrying amount of $13,300,000. As a result of this
transaction, Pearl owns 30% of John and can exercise significant
influence over John’s operating and financial policies. (Any excess
fair value is attributed to goodwill.)
John reported the following net income and declared and paid the
following dividends.
Net Income |
Dividend per Share |
|||
Year ended 12/31/17 | $770,000 | None | ||
Six months ended 6/30/18 | 490,000 | None | ||
Six months ended 12/31/18 | 815,000 | $1.60 |
Determine the ending balance that Pearl Co. should report as its
investment in John Corp. at the end of 2018.
Investment in Elton John Corp. | $ |
Investment in Elton John Corp. 1/1/17 | $1,330,000 |
Additional purchase 7/1/18 | $2,840,000 |
Adjustment for 2017 income (prior period) | $77,000 |
Adjustment for 2018 income to 6/30 (prior period) | $49,000 |
Income (7/1/18–12/31/18) $815,000 x 30% | $244,500 |
Dividends (7/1/18–12/31/18) $1.60 x 69,000 (46,000 + 23,000) shares | -$110,400 |
Investment in Elton John Corp. 12/31/18 | $4,430,100 |
On January 1, 2017, Pearl Co. purchased 23,000 shares (a 10% interest) in Elton John Corp....
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