A company (the investor) purchased 860 shares of the investee’s common stock for $107,000 on January...

A company (the investor) purchased 860 shares of the investee’s common stock for $107,000 on January 2, 2021. The investee had 2,000 outstanding shares. During 2021, the investee declared dividends of $56,000 and reported earnings for the year of $452,000. If the investor company uses the equity method of accounting for its investment in the investee, its Investment in the investee account at December 31, 2021 should be

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Expert Solution

Total shares of Investee Company = 2,000
Number of shares acquired of Investee Company = 860
Hence, percentage of shares acquired of Investee Company = 860/2000
= 43%
Cost of 43% common stock acquired of Investee Company = Number of shares bought x Price per share
= $107,000
Revenue from investment in Investee Company = Net income of Investee Company x Percentage of common stock acquired
= 452,000 x 43%
= $194,360
Share of dividend from Investee Company = Dividend paid by Investee Company x Percentage of common stock acquired
= 56,000 x 43%
= $24,080
Balance in investment at December 31, 2021 = Cost of 43% common stock acquired of Investee Company + Revenue from investment in Investee Company - Share of dividend from Investee Company
=107,000+194,360-24,080
= $277,280

Kindly comment if you need further assistance. Thanks‼!

ekkarill92 answered 1 year ago

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