Question

Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years, and has the ability to exercise significant influence over Devon. The following information relates to Larkin's investment in Devon during the most recent year:Carrying amount of Larkin's investment in Devon at the beginning of the year $200,000Net income of Devon for the year 600,000Total dividends paid to Devon's stockholders during the year 400,000What is the carrying amount of Larkin's investment in Devon at year end?A. $100,000B. $200,000C. $250,000D. $350,000

Answer 1

Answer:

C) $250,000

Explanation:

Larkin's investment in Devon at the end of the year = carrying amount at the beginning of the year + Larkin's share of Devon's income - Larkin's share of Devon's dividends

= $200,000 + ($600,000 x 25%) - ($400,000 x 25%)

= $200,000 + $150,000 - $100,000 = $250,000