Question

Madison Corporation purchased 40% of Jay Corporation for $460,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $115,000. At year-end, Jay Corporation reported net income of $575,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:___________.
a. $736,000.
b. $644,000.
c. $851,000.
d. $276,000.
e. $460,000.

Answer 1

Answer:

b. $644,000.

Explanation:

we must use the equity method:

January 1, 202x

Dr Investment in Jay Corporation 460,000

    Cr Cash 460,000

June 30, 202x, cash dividends declared (and probably paid for sometime in the near future)

Dr Dividends receivable 46,000

    Cr Investment in Jay Corporation 46,000

December 31, 202x, net income reported

Dr Investment in Jay Corporation 230,000

    Cr Investment revenue 230,000

balance = $460,000 - $46,000 + $230,000 = $644,000