Question

On January 1, Puckett Company paid $1.71 million for 57,000 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 $3 per share during the year and reported net income of $590,000. What is the balance in the Investment in Harrison account found in Puckett’s financial records as of December 31?

Answer 1

Answer:

Total 1,775,000

Explanation:

1.71m for 57,000 shares -->40% investment

$3 dividends per share

net income of 590,000

1.,710,000

+ 40% of net income 590,000  =   236,000

- 57,000 x $3 dividends per share = -171,000

The dividends under the equity method mean it is moving cash from one box (Harrison) to the main company (Puckett) so they decrease the Harrison valuation and increase cash, giving no effect on the assets of Puckett.

Total 1,775,000