Question

On January 1, 2020, Windsor Co. purchased 24,000 shares (a 10% interest) in Elton John Corp. for $1,300,000. At the time, the book value and the fair value of John’s net assets were $12,900,000.

On July 1, 2021, Windsor paid $2,890,000 for 48,000 additional shares of John common stock, which represented a 20% investment in John. As a result of this transaction, Windsor owns 30% of John and can exercise significant influence over John’s operating and financial policies. (Any excess fair value is attributed to goodwill.)

John reported the following net income and declared and paid the following dividends.

		Net Income		Dividend per Share
Year ended 12/31/20		$650,000		None
Six months ended 6/30/21		470,000		None
Six months ended 12/31/21		776,000		$1.50

Determine the ending balance that Windsor Co. should report as its investment in John Corp. at the end of 2021.

Investment in Elton John Corp.

$Enter the investment in Elton John Corp. in dollars

Answer 1

The answer will be 4426800

Particulars	Amount
Initial Investment on Jan 1- 2020	1,300,000
Investment on July 1 - 2021	2,890,000
Income on 2020	65,000
Income till June	47,000
Income for last half month	232,800
Dividend Adjustment	(108,000)
Balance on 31-12-2021	4,426,800

Here

Before june 2021 the windsor have 10% interest in the company. So in first 2020 and first half month income 10% to the part of windsor.

On july 1-2020 - Due that transaction he has 30% interst on Net income made last half month of 2021.

Dividend = Total Share x 1.5

Total Share = 24000 + 48000 = 72000 x 1.5 = 108000