Question
In: Accounting
Jones, Incorporated acquires 15% of Anderson Corporation on January 1, 2020, for $105,000 when the book...
Jones, Incorporated acquires 15% of Anderson Corporation on January 1, 2020, for $105,000 when the book value of Anderson was $600,000. During 2020 Anderson reported net income of $150,000 and paid dividends of $50,000. On January 1, 2021, Jones purchased an additional 25% of Anderson for $200,000. Any excess cost over book value is attributable to goodwill with an indefinite life. The fair-value method was used during 2020 but Jones has deemed it necessary to change to the equity method after the second purchase. During 2021 Anderson reported net income of $200,000, and reported dividends of $75,000.
The balance in the investment account at December 31, 2021, is
A. 480,000
B. 412,500
C. 400,000
D. 335,000
E. 355,000
Solutions
Expert Solution
Solution: 355,000
Working:
| Acquires 15% of Gates Corporation | 105,000 |
| Purchased an additional 25% of Gate | 200,000 |
| Share of income 2021 (200,000 * 40% ) | 80,000 |
| Dividend paid (75,000 * 40%) | -30,000 |
| Balance in the investment | 355,000 |
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