Question

On January 4, 2021, Snow Co. purchased 40,000 shares (40%) of the common stock of Walker Corp., paying $900,000. There was no goodwill or other cost allocation associated with the investment. Snow has significant influence over Walker. During 2021, Walker reported income of $240,000 and paid dividends of $75,000. On January 2, 2022, Snow sold 5,000 shares for $125,000. What was the balance in the investment account after the shares had been sold

Answer 1

The balance in an investment account after shares are sold is $845,250.

What is an investment?

An investment is the acquisition of shares owned by a parent company in a subsidiary company.

Given values for step 1:

Cost of shares : $900,000

Share in profit of Company W: $ 96,000 ($240,000 X 40%)

Share in dividends of Company W: $ 30,000  ($75,000 X 40%)

Step-1 Computation of investment value of Company S :

$\rm\ Investment \rm\ income \rm\ of \rm\ Company \rm\ S =\rm\ Cost \rm\ of \rm\ shares+ \rm\ Share \rm\ in \rm\ profits - \rm\ Share \rm\ in \rm\ Dividends\\\rm\ Investment \rm\ income \rm\ of \rm\ Company \rm\ S=\ 900,000+\ 96,000-\ 30,000\\\rm\ Investment \rm\ income \rm\ of \rm\ Company \rm\ S=\ 966,000$

Given values for step 2:

Number of shares sold: 5,000

Number of shares owned : 40,000

investment value (refer Step-1): $966,000

Step-2 Computation of investment value after the sale of shares :

$\rm\ Investment \rm\ value \rm\ after \rm\ sale \rm\ of \rm\ shares=\frac{\rm\ Number \rm\ of \rm\ shares \rm\ sold}{\rm\ Number \rm\ of \rm\ shares \rm\ owned } \times\ \rm\ Investment \rm\ value\\\rm\ Investment \rm\ value \rm\ after \rm\ sale \rm\ of \rm\ shares=\frac{5,000}{40,000} \times\ \ 966,000\\\rm\ Investment \rm\ value \rm\ after \rm\ sale \rm\ of \rm\ shares=\ 120,750$

Given values for step 3:

Investment value of Company S:$966,000

Investment value after shares sale:$120,750

Step-3 Computation of balance in investment value:

$\rm\ Balance \rm\ of \rm\ investment = \rm\ Investment \rm\ value \rm\ of \rm\ Company \rm\ S - \rm\ Investment \rm\ value \rm\ after \rm\ shares \rm\ sale\\\rm\ Balance \rm\ of \rm\ investment =\ 966,000-\ 120,750\\\rm\ Balance \rm\ of \rm\ investment=\ 845,250$

Therefore, after selling the shares, the amount of investment comes out to be $845,250.

Learn more about the investment balance in the related link:

brainly.com/question/14904259

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