Question

On January 2, 20X5, Park Co. purchased 10 percent of Sky, Inc.'s outstanding common shares for $400,000. Park is the largest single shareholder in Sky, and Park's officers are a majority on Sky's board of directors. As a result, Park is able to exercise significant influence over Sky. Sky reported net income of $500,000 for 20X5, and paid dividends of $150,000. In its December 31, 20X5, balance sheet, what amount should Park report as investment in Sky?

Answer 1

Answer:

The answer is $435,000

Explanation:

Initial Investment-----------------$400,000

Park Co's share of Sky's net income(10% x $500,000) --- $50,000

Park Co's share of Sky's dividend (10% x $150,000) ---------------------- ($15,000)

Reported Investment--------- $435,000

Therefore, Park's balance sheet

will report $435,000 as the investment in Sky's in the year ended December 31, 20X5.