The Alabama Company owns 30% of the Georgia Company and correctly accounts for its investment under...
The Alabama Company owns 30% of the Georgia Company and correctly accounts for its investment under the equity method. At the beginning of 2020 Alabama Company showed its investment in Georgia Company as $35,000. During 2020 Georgia Company reported income of $10,000 and paid $6000 in dividends. What is the book value of Georgia Company on Alabama’s books on December 31,2020?
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a
$35000
b
$45000
c
$39000
d
$36200
Homework Answers
Book value of 30% common stock acquired of Georgia Company at the beginning of 2020 = $35,000
Revenue from investment in Georgia Company = Net income of Georgia Company x Percentage of common stock acquired
= 10,000 x 30%
= $3,000
Share of dividend from Georgia Company = Dividend paid by Georgia Company x Percentage of common stock acquired
= 6,000 x 30%
= $1,800
Balance in investment at December 31, 2020 = Book value of 30% common stock acquired of Georgia Company at the beginning of 2020+ Revenue from investment in Georgia Company - Share of dividend from Georgia Company
= 35,000 + 3,000 - 1,800
= $36,200
Book value of Georgia Company on Alabama’s books on December 31,2020 = $36,200
Correct option is (d)
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