Answer:
$247,625
Explanation:
Expectation: To compute the amount to be reported in the investment on American Corporation's Financial Statements - December 31st, 2016
Step 1: American Corporation purchases of Short Supplies = $232,500
This represents 25% of the outstanding voting shares of Short Supplies.
Short Supplies net income was $89,000
Therefore, American Corporation's share of net income = 25% x $89,000
= $22,250. This is the reported income as a result of the voting shares bought.
Secondly, since cash dividend was paid (paid before the declaration of the net income), then American Corporation as an investor is also entitled to the 25% of the dividend
Therefore,
The final amount of total investment of American Corporation to be reported in the financial statement is
The value of the initial stock purchased + Share of net Income - Cash dividend due.
= $ 232,500 (original investment) + $22,250 (share of net income) - ($7,125) Cash dividend
= $247,625
