Equity Method On January 1, 2014, The Miller Corporation purchased 300,000 share

Question

Equity Method

On January 1, 2014, The Miller Corporation purchased 300,000 shares of The Mayfair Corporation for $5.7 million. The investment represented 25 percent of The Mayfair Corporation’s outstanding common shares.

During 2014, Mayfair reported net earnings of $2.25 million and paid a cash dividend of $0.15 per share. During 2015, Mayfair reported a net loss of $180,000 and again paid a dividend of $0.15 per share.

Calculate the book value of Miller’s investment in Mayfair as of December 31, 2014, and December 31, 2015.

Explanation / Answer

MayFair total number of shares = No of share mills purcahseed/25% = 300000/25%= 1,200,000
May Fair total value common stock = 5.7million/0.25 = 22.8
Book value after 2014 = 22.8 + Net earnings - Dividend payout = 22.8million + 2.25 million - 0.15 * 1,200,000 = 22.8 + 2.25 - 0.18 = $24.87million
Book Value after 2015 = Book Value of 2014 - Net loss - dividend payout = 24.87 - 0.18 - 0.18 =$ 24.51million

Best of luck . God bless

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.