Question

On January 1, 2008, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.’s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2008 and reported net income of $670,000. What was the balance in the Investment in Lennon Co.account found in the financial records of Pacer as of December 31, 2008?

Answer 1

Answer:

The balance in the Investment in Lennon Co.account found in the financial records of Pacer as of December 31, 2008 was $2,071,500

Explanation:

In order to calcuate the balance in the Investment in Lennon Co.account found in the financial records of Pacer as of December 31, 2008 we would have to calculate the following formula:

Net balance=Investment made+share of net income-dividend

Investment made = $1,920,000

share of net income= $670,000*45%= $301,500

dividend= $2.5*60,000= $150,000

Therefore, Net balance= $1,920,000 + $301,500 - $150,000

Net balance= $2,071,500

The balance in the Investment in Lennon Co.account found in the financial records of Pacer as of December 31, 2008 was $2,071,500