Question

Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock, which constitutes 10% of Martin's voting stock on June 30, 2019 for $42 per share. Phillips' intent is to keep these shares beyond the current year. On December 20, 2019, Martin paid a $4,000,000 cash dividend. On December 31, Martin's stock was trading at $45 per share and Martin reported 2019 net income of $52 million. What investment value will be reflected on Phillips' balance sheet at December 31, 2019?

Answer 1

Answer:

$45,000,000

Explanation:

The computation of the value of the invested reflected on Phillips balance sheet as on Dec 31 2019 is shown below;

= Trading stock per share × Number of common stock shares purchased

= $45 per share × $1,000,000 shares

= $45,000,000

By multiplying the trading stock per share with the Number of common stock shares purchased we can get the value of the investment and the same is considered

As we have to record for Dec 31 so $45 per share is only considered