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Anuta_ua [19.1K]
3 years ago
8

Jackson Corporation owns 10% of the voting stock of Kettering Company and has been reporting it as an equity investment with no

significant influence. At the beginning of the current year, the investment has a fair value of $40,000,000. Jackson originally purchased its 10% interest for $30,000,000. Jackson purchases an additional 25% interest in Kettering's voting stock for $120,000,000, and determines that the equity method is now appropriate. Any basis difference is attributed to goodwill. Kettering reports net income of $800,000 for the current year, and declares and pays $100,000 in dividends. The year-end fair value of Jackson's 35% interest is $170,000,000. At what amount does Jackson report the investment on its balance sheet? A. $160,245,000 B. $160,280,000 C. $170,000,000 D. $150,245,000
Business
1 answer:
iris [78.8K]3 years ago
5 0

Answer:

<u>Under Equity Method </u>

Fair Value of Investment (10%) = $40,000,000

Add: Additional Purchase (25%) = $120,000,000

Add: Share of Profit (800,000 × 35%) = $280,000

Less: Share of Dividends (100,000 × 35%) = (35000)

Investment at the year end = $160,245,000

Thus, the correct answer is A, Which indicated that the Jackson report the investment on its balance sheet is $160,245,000.

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Once having constraint on selecting investment with positive NPV to be made due to lack of fund, a firm's usually use Present value index for further decision making.

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Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to se
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