Question

Grant, Inc., acquired 30% of South Co.’s voting stock for $200,000 on January 2, Year 1, and did not elect the fair value option. The price equaled the carrying amount and the fair value of the interest purchased in South’s net assets. Grant’s 30% interest in South gave Grant the ability to exercise significant influence over South’s operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the 6 months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2.
In its Year 2 income statement, what amount should Grant report as gain from the sale of half of its investment?
A. $30,500
B. $45,500
C. $35,000
D. $24,500

Answer 1

Answer:

A. $30,500

Explanation:

As it did not elect fair value it choose for equity method.

We icnrease when income is delcare and decrease whn cash payment are distribute considering our percentage of participation.

200,000  beginning investment

+ 80,000 x  30% income = +24,000

- 50,000  x  30% dividends - 15,000

+100,000 x 30% income + 30,000

239,000

Half this investment is  119,500

amount received          150,000

gain n sale:                   30,500