Question

On January 2, 2018, Baltimore Company purchased 20,000 shares of the stock of Towson Company at $12 per share. Baltimore obtained significant influence as the purchase represents a 35% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $27,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $50,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $18 per share at the end of the year. Use this information to determine, how much Baltimore Company should report for its investment in Towson Company on December 31, 2018. (Round to the nearest dollar.)

Answer 1

Solution:

Investment in Towson Company as on December 31,2018 = $ 248,050.

Particulars	Amount	Calculation
Purchase Price	$               240,000	20000*12
Add: Equity Income Share	$                 17,500	50000*35%
Less: Dividend Received	$                 (9,450)	27000*35%
Investment in Towson Company as on December 31,2018	$               248,050

Notes:

1) Baltimore Company has significant influence as the purchase represents a 35% ownership stake in Towson Company.

2) In case of significant influence, net income and dividend, if any will be adjusted to investment value and fair value of shares are not considered in determining the year end value of investment.