Question

On January 1, Puckett Company paid $2.01 million for 67,000 shares of Harrison’s voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $2 per share during the year and reported net income of $595,000. What is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31?

Answer 1

Answer:

The $2,114,000 is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31.

Explanation:

Given that,

Purchase amount in respect for 67,000 shares = $2,010,000

Investment percentage = 40%

Dividend = $2 per share

Net income = $595,000

Through these information which is shown above, we can calculate the balance in Investment in Harrison account. The steps for computation is shown below:

Step 1: Purchase amount

Step 2: Add  Investment percentage income = Net income × Investment percentage

Step 3 : Less Dividend (Number of Shares × Dividend per share)

Now,

Purchase amount = $2,010,000

Add -  $595,000 × 40% =  $238,000

Less - 67000 × $2 = $134,000

So, the final amount is $2,114,000

Thus, the $2,114,000 is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31.