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Advanced Accounting 12th Edition by Joe Ben Hoyle,Thomas Schaefer , Timothy Doupnik
Edition 12ISBN: 978-0077862220Advanced Accounting 12th Edition by Joe Ben Hoyle,Thomas Schaefer , Timothy Doupnik
Edition 12ISBN: 978-0077862220 Exercise 2
Evan Company reports net income of $140,000 each year and declares an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2014. On that date, Shalina purchases 40 percent of the outstanding stock for $600,000, which gives it the ability to significantly influence Evan. At the purchase date, the excess of Shalina's cost over its proportionate share of Evan's book value was assigned to goodwill. On December 31, 2016, what is the Investment in Evan Company balance (equity method) in Shalina's financial records
a. $600,000.
b. $660,000.
c. $690,000.
d. $708,000.
a. $600,000.
b. $660,000.
c. $690,000.
d. $708,000.
Explanation
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Verified
On 1 st January 2014 S Company has acquired 40% of the voting stock of E Company for $600,000. The book value of the net assets of the E Company on the date of acquisition was $1,200,000. The excess of cost over book value of 40% of the E Company is calculated as under:
Under the equity method the investment account is adjusted with the share of net income or losses or dividend received of the investee company. The income accrued is added to the cost of purchase of investment and dividend collected is reduced from the cost.
The calculation of Equity investment of S Company in E Company as on 31 st December 2016 is as under:
The value of investment in E Company at the end of the year 31 st December 2016 was $708,000 as stated in point (d). All the other figures given in point (a), (b) and (c) are incorrect.
Under the equity method the investment account is adjusted with the share of net income or losses or dividend received of the investee company. The income accrued is added to the cost of purchase of investment and dividend collected is reduced from the cost.
The calculation of Equity investment of S Company in E Company as on 31 st December 2016 is as under: The value of investment in E Company at the end of the year 31 st December 2016 was $708,000 as stated in point (d). All the other figures given in point (a), (b) and (c) are incorrect.
Advanced Accounting 12th Edition by Joe Ben Hoyle,Thomas Schaefer , Timothy Doupnik
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