On January 1, 2018, an investor company acquired 30% of an investee company’s common stock for...
On January 1, 2018, an investor company acquired 30% of an investee company’s common stock for $600,000. As a result of this transaction, the investor can exert significant influence over the investee. During each year ended December 31, 2018 and 2019 the investee reported $120,000 of net income and $50,000 of dividends. On January 1, 2018, the book value of the investee’s net assets was $2,000,000 and all individual net assets had appraised fair values that equaled their reported book values. On December 31, 2019, what is the balance of the Equity Investment account on the Investor’s balance sheet? Select one: a. $740,000 b. $642,000 c. $621,000 d. $600,000
Homework Answers
Solution:
balance of the Equity Investment account on the Investor’s balance sheet = Purchase cost + Share in income of 2 years - Share in dividend of 2 years
= $600,000 + ($120,000*2*30%) - ($50,000*2*30%)
= $600,000 + $72,000 - $30,000 = $642,000
Hence option b is correct.
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