Question

On January 1, 2016, American Corporation purchased 30% of the outstanding voting shares of Short Supplies common stock for $240,000 cash. On that date, Short's book value and fair value were both $800,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2016, was $76,000. During 2016, Short also paid cash dividends in the amount of $22,000.
Required:
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2016

Answer 1

Answer:

$256,200

Step by Step Explanation:

Original Investment 240,000

Share of net income

30%of 76,000 = 22,800

Less cash dividend

30%of 22,000 = (6,600)

Balance, December 31, 2016 $256,200

240,000+ 22,800= 262,800

262,800 - 6,600= 256,200

Therefore the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2016 is $256,200