Question

Pare, Inc. purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, Year 1, for $50,000. On December 31, Year 1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during Year 1. Tot reported earnings of $300,000 for Year 1. What amount should Pare report in its December 31, Year 1, Balance Sheet as investment in Tot

Answer 1

Answer:

$230,000

Explanation:

Calculation to determine What amount should Pare report in its December 31, Year 1, Balance Sheet as investment in Tot

Based on the information given the 10% ownership percentage will be used in Year 1 reason been that the additional 20% purchased in 12/31/Year 1, hence In Year 2, 30% earnings would be recorded in the investment account

Investment account at 12/31/Year 1 =[(Actual ownership percentage*Outstanding shares of common stock 1/2/Year 1)+ 1/2/Year 1 Common stock value ] +(Additional ownership percentage*Outstanding shares of common stock 12/31/Year 1 )+ 12/31/Year 1 Additional shares value]

Let plug in the formula

Investment account at 12/31/Year 1 =

[(100,000*10%)+$50,000]+[(100,000*20%)+$150,000

Investment account at 12/31/Year 1 =($10,000+$50,000)+($20,000+$150,000)

Investment account at 12/31/Year 1 =$60,000+$170,000

Investment account at 12/31/Year 1 =$230,000

Therefore The amount that Pare should report in its December 31, Year 1, Balance Sheet as investment in Tot is $230,000