Question

In: Accounting

Port Company purchased 31,500 of the 105,000 outstanding shares of Sund Company common stock on January...

Port Company purchased 31,500 of the 105,000 outstanding shares of Sund Company common stock on January 1, 20X2, for $189,000. The purchase price was equal to the book value of the shares purchased. Sund reported the following:

Year Net Income Dividends
20X2 $ 44,000 $ 29,000
20X3 34,000
20X4 17,000


Required:
Compute the amounts Port Company should report as the carrying values of its investment in Sund Company at December 31, 20X2, 20X3, and 20X4.

Amounts
20X2
20X3
20X4

  

Solutions

Expert Solution

Given that port company acquired 31,500 shares of sund company out of 105,000 outstanding shared. Therefore, its share is 31,500/105,000 = 0.3

Now, the carrying amount of port's investment shall be reported as follows:

20X2 $193,500  = $189,000 + 0.3($44,000) - 0.3($29,000)

Explanation: To the purchase price of investment we shall add the port company's share of Net income for the year deducted by the amount of dividends paid out of the income.

20X3 $203,700 = $193,500 + 0.3($34,000)

Explanation: Now, similarly to the value given to the investment last year, we shall add port's share of this years income and since there was no dividend we do not need to adjust the same.

20X4 $208,800 = $203,700 + 0.3($17,000)

Explanation: Now, similarly to the value given to the investment last year, we shall add port's share of this years income and since there was no dividend we do not need to adjust the same.

ekkarill92 answered 1 week ago
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