Question

On January 1, 20X9 Pathlon Company acquired 30 percent of the common stock of Sopteron Corporation, at underlying book value. For the same year, Sopteron reported net income of $55,000, which includes a gain from discontinued operations of $40,000. It did not pay any dividends during the year. By what amount would Pathlon's investment in Sopteron Corporation increase for the year, if Pathlon used the equity method?

Answer 1

Answer:

increase in investment = 16,500

Explanation:

Given data:

net income $55 000

Gain $40,000

PATHLON SHARE IN SOPTERON 30%

according to Wquity method, the increase in investment can be determined as following

increase in investment = share of net income - dividend

putting all value to get increase in investment value

increase in investment $= 55000\times 30% - 0$

                                       $= 55000\times 0.30$

                                       = 16,500