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In: Accounting

On January 2, 2018, All Good Company purchased 7,000 shares of the stock of Big Bad...

On January 2, 2018, All Good Company purchased 7,000 shares of the stock of Big Bad Company, and DID obtain significant influence. The investment is intended as a long-term investment. The stock was purchased for $11 per share, and represents a 30% ownership stake. Big Bad Company made $300,000 of net income in 2018, and paid dividends to All Good Company of $40,000 on December 15, 2018. Big Bad Company's stock was trading on the open market for $19 per share at the end of the year. Use this information to determine the book value of the investment that should be reported at year end by All Good Company. Round to nearest whole dollar.

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Answer:

Given that:

All Good Company purchased 7000 shares (30% ownership) of the stock of Big Bad Company, and did obtain significant influence.

As such Equity method of accounting would be applicable for the investment.

The book value of the investment that should be reported at year end by All Good Company = $127,000

ekkarill92 answered 2 years ago
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