Question

Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net income of $90,500 and declared dividends of $21,500 during the year. How much would Ramiro adjust its investment in Marco Company under the equity method

Answer 1

Answer:

$27,600

Explanation:

A. To record equity income

Dr Investment in macro $36,200

Cr Equity income from macro $36,200

(40%×90,500= 36,200)

B.To record cash dividend

Dr Cash $8,600

Cr Investment in macro $8,600

(40%×21,500=8,600)

Therefore:

Increased in investment- macro company stock

$36,200-$8,600= $27,600

Answer 2

Answer:

Explanation:

Given the following :

Purchased outstanding stock by Ramiro= 40%

Marco net income = $90,500

Marco dividend = $21,500

From the information above, under the Equity method, Purchasing a percentage share of a stock entitles the buyer to partial ownership of the company. With Ramiro's 40% purchase of Marco's outstanding stock, Ramiro is entitled to 40% of Marco's net income and dividend.

Therefore ;

40% of net income :

0.4 × $90,500 = $36,200(Ramiro's share of net income)

40% of dividend :

0.4 × $21,500 = $8600(Ramiro's share of dividend)

Ramiro's adjustment = $(36,200 - 8600) = $27,600