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In: Accounting

Grant Company acquired 40% of the voting stock of Jake Corporation on January 1, 2016, for...

Grant Company acquired 40% of the voting stock of Jake Corporation on January 1, 2016, for $50,000,000. Basis differences were attributed entirely to goodwill. During the 5-year period from January 1, 2016 through December 31, 2020, Jake reported total net income of $23,000,000 and paid $8,000,000 in dividends. During 2021, Jake reported net income of $3,000,000 and paid $800,000 in dividends.
Required:
a. Calculate the balance in Investment in Jake, reported on Grant’s December 31, 2020 balance sheet.

b. Calculate the balance in Investment in Jake, reported on Grant’s December 31, 2021 balance sheet.

Solutions

Expert Solution

a) Balance in Investment in Jake, on December 31, 2020 is calculated as follows:-

(Amounts in $)

Cost of Investment as on Jan 1, 2016 50,000,000
Add: Share of Net Income (2016-2020) ($23,000,000*40%) 9,200,000
Less: Share of Dividend (2016-2020) ($8,000,000*40%) (3,200,000)
Balance as on December 31, 2020 56,000,000

b) Balance in Investment in Jake, on December 31, 2021 is calculated as follows:-

(Amounts in $)

Balance as on December 31, 2020 56,000,000
Add: Share of Net Income (2021) ($3,000,000*40%) 1,200,000
Less: Share of Dividend (2021) ($800,000*40%) (320,000)
Balance as on December 31, 2021 56,880,000

Share in net income will increase the balance in investment and share in dividends paid will decrease the balance in investment.

ekkarill92 answered 2 years ago
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