Question: On January 1, 2020, Sunland Corporation purchased 36% of the common stock outstanding of Blossom...
Homework Answers
The percentage of holding is 36%.
When a company makes an acquisition between 20% to 50% it acquires significant control over the other company. In such cases Equity Method should be used for valuation. Under this method share of income earned is added and share of dividend should be deducted since it is treated as a repayment.
Value of Investment = Initial investment + Share of Income -
Share of Dividend
Value of Investment = 670,000 + (220,000 X 36%) - (100,000 X
36%)
Value of Investment = 670,000 + 79,200 - 36,000
Value of Investment = 713,200
Option A is correct
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On January 1, 2020, Sunland Corporation purchased 36% of the
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Sunland Company purchased 100 of the 1000 outstanding shares of
Darby Company's common stock for $660000 on January 2, 2018. During
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earnings for the year of $460000.
If Sunland Company uses the equity method of accounting for its
investment in Darby Company, its Equity Investments (Darby) account
at December 31, 2018 should be
$660000.
$693000.
$706000.
$647000.
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